Investors who wish to include commodities in their portfolios to reduce risk and volatility in the financial markets may be concerned as U.S. stocks and commodities haven’t moved in tandem like this in over forty years.
However, Wells Fargo Investment Institute strategists suggest that it might not be a major worry.
Up until the global financial crisis of 2008, the correlation between stocks and commodities over rolling 20-year periods since 1980 was roughly 0.2. According to a note released on Monday by Wells Fargo Investment Institute investment strategists Douglas Beath and Jeremy Folsom, it then progressively rose to a long-term average of roughly 0.46 in 2020 and has stayed there ever since.
A negative correlation coefficient denotes an inverse relationship between two variables, whereas a greater-than-zero correlation suggests a direct relationship. A correlation can have values in the range of negative 1 to 1.

A seemingly never-ending rally in megacap technology shares propelled benchmark stock indexes SPX DJIA COMP to record highs earlier this year, while concerns about escalating Middle East tensions and robust buying from global central banks propelled gold prices GC00, -0.34% GCM24, -0.34% to all-time highs. The chart above illustrates how the correlation between stocks and commodities has hovered at its highest levels since 1980.
Investors who wish to include commodities in their portfolios to reduce risk and volatility in the financial markets may be concerned as U.S. stocks and commodities haven’t moved in tandem like this in over forty years.
However, Wells Fargo Investment Institute strategists suggest that it might not be a major worry.
Up until the global financial crisis of 2008, the correlation between stocks and commodities over rolling 20-year periods since 1980 was roughly 0.2. According to a note released on Monday by Wells Fargo Investment Institute investment strategists Douglas Beath and Jeremy Folsom, it then progressively rose to a long-term average of roughly 0.46 in 2020 and has stayed there ever since.
A negative correlation coefficient denotes an inverse relationship between two variables, whereas a greater-than-zero correlation suggests a direct relationship. A correlation can have values in the range of negative 1 to 1.
Bloomberg, Wells Fargo Investment Institute, and Morningstar Direct
A seemingly never-ending rally in megacap technology shares propelled benchmark stock indexes SPX DJIA COMP to record highs earlier this year, while concerns about escalating Middle East tensions and robust buying from global central banks propelled gold prices GC00, -0.34% GCM24, -0.35% to all-time highs. The chart above illustrates how the correlation between stocks and commodities has hovered at its highest levels since 1980.
According to Dow Jones Market Data, silver prices have also surged by more than 14% this year, surpassing the 12.2% gain in gold so far.
Since commodities’ returns are generally independent of those of riskier assets, they have historically provided portfolio diversification advantages. Bull markets in commodities have frequently coincided with bear markets in the stock market, and vice versa.
The 20-year rolling correlations between stocks and commodity prices from the global financial crisis to the start of the COVID-19 pandemic in 2020 were “volatile,” but they still “steadily rose” from negative to moderately positive territory, according to Beath and Folsom. They pointed out that a drop in aggregate demand and concerns about deflation, which negatively impacted risk assets, were the causes of the correlation spike that occurred during the financial crisis.
However, they noted that since the pandemic’s beginning, the correlation between stocks and commodities has generally stayed “mostly low.”
Beath and Folsom stated, “We continue to believe that investors can benefit from diversification benefits that can help reduce portfolio volatility and improve the consistency of returns over time” with a broad exposure to commodities.
The Wells Fargo strategists suggested that an additional explanation for the increase in stock-commodity correlations could be found in the history of so-called commodity supercycles.
Commodity supercycles are periods of time, typically lasting ten to twenty years, during which the prices of metals, energy resources, and agricultural products move in tandem. A bull supercycle, in which prices rise together, or a bear supercycle, in which prices move lower together, are the two possible types of these cycles.
During the financial crisis, the rolling 20-year commodity-stock correlation increased from negative 0.3 to 0.4, signalling the beginning of the most recent commodity bear supercycle.
The strategists pointed out that during the previous bear supercycle, which lasted from 1980 to 1999, commodities showed “consistently negative correlations” with stocks, because falling real asset prices and inflation ignited a 20-year bull market for equities.
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