Commodities as an Inflation Hedge
At-a-glance
- Commodities have outperformed equities as inflation rises
- Crude oil leads the price rally in commodities, rising 48% so far this year
- Commodities are rallying despite a strengthening dollar
- Expected slowdown in global growth clouds demand scenario for 2023
Commodities have rallied this year, outperforming equities and underscoring their credentials as a hedge against rising inflation and as a portfolio diversifier at a time when investors are debating if the world’s largest economy can avoid tripping into a recession as the Federal Reserve (Fed) raises interest rates.
The S&P GSCI, a composite of 24 commodities representing sectors from energy to agriculture and livestock to metals, has surged 34% since the start of 2022, and is up 213% from its 2020 low during the pandemic, while the CRB Index, which consists of 19 commodities including crude oil, gold and corn, is up about 37% this year, and is up nearly 200% from its 2020 low.
By contrast, the S&P 500 has had a -22.5% year-to-date total return as of June 16 and is down by about 12% from a year ago. The tech-heavy Nasdaq-100 is down 31% from the beginning of 2022 and down 4% from a year ago (Figures 1 and 2).
