Plummeting commodity prices are signaling that there will be a US
in 2022, according to veteran market strategist Joe Terranova.
Investors are increasingly fretting about the risk of a severe and sustained downturn, as the
aggressively hikes interest rates to tame soaring inflation. But in dampening demand, it risks curbing economic growth.
Terranova — chief market strategist at $187 billion asset manager Virtus Investment Partners — told CNBC he believes negative economic growth is likely to happen in the US this year, rather than next.
“It’s obvious to us that the recession conversation shouldn’t be about one in 2023,” Terranova said on “Halftime Report” on Tuesday. “It should be about one in 2022 — if we’re not already in one right now.”
US stocks have fallen as investors worry about inflation at 40-year highs and central banks’ monetary tightening to deal with it. Recently, though, they have shifted their focus to weighing up whether and when a recession will hit.
“The calendar has turned into July, and the market isn’t pricing based on inflation,” Terranova said. “It’s pricing based on an expected recession.”
A slide in commodity prices shows demand is slowing, a potential harbinger of recession, he noted. The strategist highlighted three assets — oil, copper, and lumber — that are signaling one is on the cards for 2022.
“Specifically towards commodities, you have disinflationary pricing,” Terranova said. “The price of oil [is] below $100, copper [is] down at a 17-month low, and it expands beyond that, it’s lumber, agriculture, and soft commodities.”
“The commodities story is a weak one,” he added.
If inflation continues to push prices higher and an economic downturn hits, that demand destruction should continue, analysts have said. The rush into US dollar as a safe haven during market uncertainty will also put on pressure.
Oil prices have fallen in the last month, after topping $120 a barrel in March and April. Brent crude was down 13% at $104 a barrel Wednesday, and WTI crude dropped 16% to hover just over $100 a barrel. Citi analysts warned Tuesday that oil could tumble to $65 a barrel if there’s a recession this year.
Lumber prices are tumbling too, with futures down 27% over the last three months to $640 a thousand board feet Wednesday. Red-hot house prices and soaring mortgage costs are curbing demand for the commodity.
Terranova has been Virtus’ chief market strategist since 2008. The Hartford-based investment firm managed assets worth $187.2 billion as of December 2021.