Barclay’s Warns of a Race to the Exits in the Commodity Sectors

This goes without saying. But you’d never know it after talking with your local investment advisors.

The commodity sector has been home to some of the best performing stocks for 2016. After a debilitating Q4 of 2015 and first month of 2016, steel, oil, copper and aluminum have soared to the tune of 30%, with broader raw commodity gains in crude upwards of 50%.

Nonetheless, without the succor of real fundamental upside, said shares are vulnerable to a most heinous reversal in fortune.

Barclay’s agrees.

“Investors have been attracted to commodities as one of the best performing assets so far in 2016,” he said in the March 28 report. “However, in the absence of any concerted fundamental improvements, those returns are unlikely to be repeated in the second quarter, making commodities vulnerable to a wave of investor liquidation.”

“Given that recent price appreciation does not seem to be very well founded in improving fundamentals, and that upward trends may prove difficult to sustain, the risk is growing that any setback will result in a rush for the exits that could again lead commodity prices to overshoot to the downside,” he said.

“Key commodities markets such as oil and copper already face overhangs of excess production capacity and inventories, but also now face another obstacle in the recovery process, that of positioning, which is now approaching bullish extremes,” Norrish said.

For the year, SID, AKS and CLF are up more than 75%.