When one is compelled to take a closer look at indicators around economic factors like investor sentiment, some very interesting realisations come to the fore. Usually there’s some kind of financial gain or other basic need associated with any sustained effort to analyse the markets in this way, but it can still be a lot of fun either way.
The main takeaway is inevitably that investor sentiment pretty much mirrors market sentiment, which basically just means that the supply side of the equation usually mirrors the demand side. But what do commodities exports in particular teach us about investor sentiment over the long-term and by extension, market sentiment?
Understanding business cycles
Commodities are the lifeblood of the industrial and post-industrial life as we know it, with the manner in which we trade and deploy them justifiably being open to some criticism. Either way, you can tell a lot about long-term investor and market sentiment by looking at figures around the exportation of commodities. The best points at which to conduct this analysis, in order to draw a definitive conclusion, are during the peaks and troughs of a typical business cycle.
A business cycle refers to identifiable points during a defined period of economic activity, when the market is very fluid and healthy, and when the market is slow and almost completely stagnant.
Where does a pandemic fit into the business cycle?
Usually a business cycle just plays out in a wave-like fashion, with the natural flow of economic activity inevitably leading to alternating periods of abundance and various degrees of recession. The good times don’t roll forever, but neither do the bad times last eternally.
Over the past year the global markets have had to navigate the precarious world of economics in the wake of a global health pandemic, which only serves to highlight sentiments during the trough. A pandemic is indeed a part of the downward trend of the business cycle, during which time long-term investor and market sentiment reveals some very interesting findings.
Basically it brings into focus what investors and the markets consider to be of leading importance.
Shortly after April, as per the exports research data published by Freightline Carriers, exports of motor vehicles took a very sharp dip, while in the preceding month of April there was huge spike in the exports of precious metals. This points to investor and market sentiment prioritising raw materials over finished products, mirrored by some panic-buying of what are believed to be soon-to-have-been scarce essentials in the consumer market.
Pretty much everything else maintained a steady trend, which serves to indicate that even in the wake of a pandemic, the markets ultimately serve as a great indicator of what is most important for the sustenance of life as we know it today. It’s ideally the ability to be self-sufficient, or to have to rely on only a few other market-players for sustenance.