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Market Commentary

Weekly commentary providing analysis with an outlook for the equity market.

August 3, 2022

Scott Wren, Senior Global Market Strategist

Super cycle

Key takeaways

  • We believe commodities began a new bull super cycle in March 2020.
  • The recent pullback has given us an opportunity to upgrade commodities to favorable from neutral.

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What makes the world economy go round? Commodities. Think about it. Every day consumers use commodity products. Putting gasoline in your car? How about stopping by the grocery store to find something to prepare for dinner tonight? Most of us turn to a variety of commodities on a daily basis for survival. The prices of oil and agricultural products might be set by the global markets, but we feel the effects of shortages or surpluses right in our own backyards (and wallets).

Consumers know the price of oil, and, therefore, gasoline, has skyrocketed since the depths of the COVID pandemic in March 2020. The same thing has happened with prices at the grocery store for beef, chicken, and grain-based products. The prices of many other commodities including industrial metals like copper, aluminum, and iron ore have also risen dramatically over the last two years. As a result, the Bloomberg Commodity Index (BCOM), our preferred commodity price gauge, surged 130% from March 2020 into early June 2022. We held a favorable rating on commodities for the two years ending in March 2022 but reduced positions as we felt prices had become extended.

We have written often in this weekly piece, especially since the pandemic lows in the equity market, about seeking potential opportunities that arise during periods of uncertainty and downdrafts in the markets. We often encourage longer-term investors to seek opportunities during market corrections. From mid-June through mid-July, the BCOM pulled back nearly 18%. We feel this pullback offers a buying opportunity. This recent downside reversal represents what we believe to be a consolidation period within a longer-term uptrend. Looking ahead through the current period of economic headwinds and likely a moderate economic recession, we look for the global economy to eventually stabilize and regain some strength should continue to feature commodity supplies that fall short of demand. Even with the recent pullback in gasoline and crude oil demand, prices remain well above year-ago levels. As a result, we have recently upgraded commodities to favorable from neutral.

From a portfolio perspective, we have chosen to increase tactical allocation to commodities by decreasing exposure to large-cap U.S. equities. We continue to hold a most favorable or overweight rating on U.S. large-caps, but given the proximity of the S&P 500 Index to our year-end target range, we feel the upside for large-cap domestic equities is somewhat limited in the near term and a portion of the funds would be better allocated to commodities.

Our longer-term view of commodities remains positive. We believe commodities began a new bull super cycle in March 2020. Commodity bull super cycles are periods of strong commodity performance, often lasting a decade or longer. It is typical for a commodity bull super cycle to experience bouts of falling or consolidating prices while the long-term trend remains higher. We believe the recent pullback in the BCOM represents an opportunity to upgrade our guidance on commodities to favorable, in line with our bull super cycle view.

Risk Considerations

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility.


Bloomberg Commodity Index is comprised of 22 exchange-traded futures on physical commodities and represents 20 commodities weighted to account for economic significance and market liquidity.

S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market.

An index is unmanaged and not available for direct investment.

General Disclosures

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee to its accuracy or completeness.

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