U.S. investors should welcome, not fear, climbing commodity prices. The increases are "largely a reflection of the fact that the pace of economic growth, particularly in the U.S., has picked up," said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, and a former Federal Reserve official who has been covering the global economy for more than 35 years. "It's not something to be worried about." The Standard & Poor's GSCI Spot Index of 24 commodities has climbed 24% during the past year to its highest level since September 2008. Prices of raw materials from oil and copper to wheat and cotton have increased, prompting investor concerns that rising energy and other costs might derail U.S. recovery by robbing consumers of purchasing power and pinching corporate profit margins.
History suggests they're wrong to be concerned, said Michael Darda, chief economist for MKM Partners in Stamford, Conn. Commodity prices usually move in tandem with U.S. production, income and the stock market, so the increase is a reason to be bullish, he said.
"High commodity prices are the result of rising demand, not the cause of future economic weakness," Darda said. "Over the last decade, commodity prices and the U.S. stock market have usually moved together." He sees the Standard & Poor's 500 Index rising to 1,425 this year as the economy grows by about 4%. The U.S. expanded 2.9% in 2010, according to the median estimate of 70 economists surveyed by Bloomberg News from Jan. 3 to Jan. 11.
U.S. commodity producers benefit directly from the rise in prices. The SPDR Metals and Mining Exchange Traded Fund, which includes Alcoa and 25 other companies, has outperformed the Standard & Poor's 500 ETF Trust, climbing 53% since June 30, 2010, compared with 26% for the trust.
