Stock-market routs like Wednesday’s highlight the importance of portfolio diversification. While not suitable for all investors, commodities are looking increasingly cheap and uncorrelated to the equity market. Unlike stocks — which experience their worst drawdowns in a recession — commodities rally through downturns. Further, buoyant excess liquidity should limit the extent of their current selloff and support higher prices.
A nasty day for stocks on Wednesday saw the S&P having its biggest daily fall since December 2022. Commodities have experienced their own rout over the past few weeks, but they are starting to look more attractive and a great candidate to diversify equity portfolios increasingly driven by only a handful of stocks beholden to the AI theme.
