Oil will surge 19% and copper will see double-digit returns over the next 6 months as economic reopening gives commodities a boost, Goldman says

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In this Photo illustration, the Goldman Sachs logo seen displayed on a smartphone.

  • Goldman Sachs said it expects commodities to stage double-digit rallies over the next six months.
  • Tailwinds include coronavirus restrictions easing worldwide, on top of lower interest rates and a weaker dollar.
  • The price of Brent crude oil could surge 19% while copper could rise 11%.
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Goldman Sachs expects commodities prices to stage double-digit rallies over the next six months as coronavirus restrictions ease across the world, aided by lower interest rates and a weaker dollar.

The bank in a note Wednesday said it predicts the price of Brent crude, oil’s international benchmark, to rise 19% to $80 a barrel and West Texas Intermediate crude to jump 20% to $77 a barrel.

“We expect the biggest jump in oil demand ever – a 5.2 [million barrels per day] rise over the next six months, 50% larger than the next largest increase over that time frame since 2000 and almost twice as large as the biggest 6 million supply rise since 2000,” analysts led by Jeffrey Currie said.

The analysts also upgraded their 12-month price target for copper to $11,000 per tonne, a jump of 11% from current levels. If the green capital expenditure is at the center of the commodity supercycle, they said copper is at the center of this trend. Copper is a critical raw material for green infrastructure and has an under-invested supply side, they said.

“The only way this record-sized and fast approaching supply crunch can be solved is via a surge in price to new record highs,” the analysts said. “We essentially see the copper market sleepwalking to a classic case of ‘Revenge of the old economy,’ just as oil did during the 2000s commodity boom.”

As for gold, the analysts see the price of the yellow metal rising 12% to $2,000 an ounce over the next six months, highlighting its “real use” compared to bitcoin.

“While bitcoin benefits from greater liquidity, it suffers from lack of real use and weak [environmental, social, governance] scoring due to its high energy consumption which makes it vulnerable to losing store of value demand to another better designed cryptocurrency,” the analysts said.

Edmund Moy, former Director of the US Mint and now chief market strategist at gold seller Valaurum, agreed.

“Cryptocurrencies like bitcoin are many things but I do not consider them a store of value yet because they do not have a long history of maintaining its value, the way gold has,” he told Insider. “I could change my mind…Ask me again in two thousand years.”

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Spending at US retailers rockets 9.8% higher as stimulus supercharges reopening

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  • US retail sales surged 9.8% in March to a record $619.1 billion, the Census Bureau said Thursday.
  • The leap nearly doubles the median economist estimate of a 5.8% gain from a Bloomberg survey.
  • Sales were bolstered by warmer weather and $1,400 checks included in Democrats’ stimulus plan.
  • See more stories on Insider’s business page.

Warmer weather, reopening, and stimulus support converged in March to drive the strongest month of retail spending the US has ever seen.

Retail sales increased 9.8% last month to a record $619.1 billion, according to Census Bureau data published Thursday. The leap nearly doubles the median economist estimate of a 5.8% gain from economists surveyed by Bloomberg. February’s decline was revised higher to a 2.7% contraction.

The March reading sits 27.7% higher than that seen exactly one year ago. Sales dipped in March 2020 and hit their pandemic-era floor in April as initial lockdowns and fears of COVID-19 kept Americans from spending at physical stores.

Retail sales have been a key indicator for economic activity and became even more relevant amid the virus-induced restrictions. Such spending counts for roughly 70% of economic activity, and the rebound seen after the winter virus wave suggests the country can soon return to pre-pandemic strength.

Stimulus boost, redux

Last month’s upswing mirror that seen at the start of the year. Retail sales shot 7.6% higher in January as Americans deployed direct payments included in President Donald Trump’s $900 billion stimulus package. The climb snapped a three-month streak of declines and handily beat economist forecasts.

It appears the $1.9 trillion stimulus measure approved by President Joe Biden in March achieved a similar effect.

“With fresh stimulus checks in hand, consumers took advantage of warmer weather and increased vaccinations to splurge at car dealerships, shopping malls, restaurants, and home improvement stores,” Gregory Daco, chief US economist at Oxford Economics, said, adding the March reading only marks the beginning of the “consumer boom.”

Oxford Economics expects private spending to grow 8.4% through 2021 on the back of widespread vaccination and reopening. That would be the fastest growth rate since 1946.

Early data suggests Americans didn’t even use the full payments to drive the March increase. Stimulus check recipients only spent about 25% of the payments, according to researchers at the Federal Reserve Bank of New York. That’s less than the share spent from the previous two rounds of stimulus checks. Conversely, larger portions were diverted to savings.

The data is clear: The economy is recovering

The retail sales report caps a month that’s likely to mark a turnaround for the US economy. For the first time since the pandemic began, practically every economic release pointed to a broad and fast-paced recovery.

Consumer sentiment leaped to one-year highs as the vaccination rate improved and nicer weather allowed for a return to some pre-pandemic activities. Jobless claims tumbled to pandemic-era lows, and fell further still last week. The manufacturing sector continued to grow at a healthy pace, and the service businesses saw activity rebound after struggling through the winter.

Perhaps the most notable report came on April 2 from the Bureau of Labor Statistics. The agency reported a 916,000-payroll gain in March, beating estimates and marking the strongest month of job growth since August. Readings for January and February were both revised higher, and the headline unemployment rate fell to 6% from 6.2%.

To be sure, there’s still plenty of progress to make before the country is fully in the clear. The government’s monthly jobs report showed the economy is still down some 8.4 million payrolls from before the health crisis. Unofficial estimates that include misclassification and workers who dropped out of the labor force since February 2020 place that sum closer to 14 million. And while jobless claims continue to decline, they still sit at levels twice as high as those seen before the pandemic.

The Thursday spending data is an encouraging sign. Increased spending lifts businesses’ demand for workers and, in turn, accelerates hiring. The pace of vaccination continues to improve, and state and local governments are slowly relaxing their lockdown measures.

Coronavirus strains still present some risks, but the economy seems to be at an “inflection point,” Federal Reserve Chair Jerome Powell said Wednesday. Americans should keep socially distancing and masking up to ensure the country can effectively curb the virus’s spread, he added.

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Wall Street and Main Street are both scared of inflation, and how the US economic recovery will hit their wallets

Wells Fargo ATM
Banks large and small, both national and regional, are seeing increased interest in digital and contactless services, as the coronavirus pandemic has forced consumers to rethink the kind of banking interactions they’re comfortable having.

  • Americans of varying backgrounds are growing increasingly concerned of rampant inflation.
  • Google searches for “inflation” reached a record high this week, according to Deutsche Bank.
  • Surveyed fund managers now see high inflation as riskier to markets than the pandemic, BofA found.
  • See more stories on Insider’s business page.

Forget the pandemic. Inflation is the new issue haunting Americans, on Wall Street and Main Street alike.

Celebrations over vaccine approvals and falling COVID-19 case counts are giving way to concerns over just how quickly the economy will recover – and what that means for prices.

New stimulus signed earlier this month promises to send hundreds of billions of dollars directly to Americans and supercharge consumer spending. And shortly afterward, the central bank underscored that it will support a strong recovery this year, as the Federal Reserve reiterated that it plans to maintain ultra-easy financing conditions at least through next year.

The potent combination of monetary and fiscal support has many fearing a sharp jump in inflation. The eventual reopening of the US economy is expected to revive Americans’ pre-pandemic spending habits. Yet an overshoot of expected inflation could spark a cycle of increasingly strong price growth that leaves consumers with diminished buying power.

Worries of such an outcome are shared among both the investor class and the general public. Google searches for “inflation” surged to their highest level since at least 2008 last week, according to research by Deutsche Bank Managing Director Jim Reid. Dovish investors might highlight that similar spikes emerged after the financial crisis, but hawks can point to the unprecedented scale of pandemic-era relief for why today’s situation stands out, Reid said in a note to clients.

“Whether or not inflation ever materializes there is a rational reason why this time might be different. That’s reflected in the increased attention on inflation,” Reid added.

The theme that this time might be different was echoed by a UBS team led by Arend Kapteyn, who wrote in a March note that “pandemic price movements have been unusually large … and are historically difficult to model/predict.”

More recently, a survey from data firm CivicScience shows 42% of adults being “very concerned” about inflation, according to Axios. That compares to just 17% saying they’re “not at all concerned.”

Inflation worries investors more than Covid

Also, institutional investors are shifting their focus from the pandemic to the risk of rampant inflation. Higher-than-expected inflation is now the biggest tail risk among fund managers, according to a recent survey conducted by Bank of America, higher even than the pandemic itself. Snags to vaccine distribution fell from the top of the list to third place, while a potential bond-market tantrum was the second most-feared risk.

To be sure, younger Americans seem less perturbed. The gap in inflation expectations between the baby boomer generation and millennials is the widest its ever been, a team of Deutsche Bank economists led by Matthew Luzzetti wrote earlier this month.

The disparity is likely a product of vastly different circumstances, according to the team. Older investors lived through the “Great Inflation,” a period from the mid-1960s to the early 1980s during which inflation surged and forced interest rates to worrying highs.

Younger Americans have only known a quarter-century of inflation landing below the Federal Reserve’s 2% target, and millennial investors could have a massive influence on whether inflation expectations and real price growth trend higher as the economy reopens, the bank’s economists said.

“With memories of the Great Inflation possibly already lifting inflation expectations for older age groups today, a more material drift higher in expectations likely would require a lift from the younger age groups,” they added.

CivicScience’s newer data suggests that gap is quickly closing. More than half of respondents aged 18 to 24 said they’re “very concerned” about inflation, more than any other age group surveyed. By comparison, just 37% of Americans aged 55 and older said they’re “very concerned.”

Respondents aged 35 to 54 were still the most worried overall, with 48% saying they’re “very concerned” and 36% saying they’re “somewhat concerned,” according to CivicScience.

Kapteyn’s note for UBS highlighted that the conversation around inflation closely resembles the one following the Great Recession: “A decade ago, following the global financial crisis, we were having very similar conversations with clients as we are now.”

At that time, fears of a quick recovery fueling an inflation bubble were similarly strong, “but instead we wound up in secular stagnation,” the bank wrote, referencing the phrase made famous by prominent economist Larry Summers to describe prolonged low growth and low inflation.

This suggests that Americans’ worries about future price growth – including warnings from Summers himself – could starve the US economy of healthy growth and rehash the last decade’s plodding recovery.

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ETFs tracking oil, air travel and retail are soaring as investors pile into stocks tied to the reopening of the economy

Alaska Airlines, American Airlines, and Delta Air Lines at LAX
Alaska Airlines, American Airlines, and Delta Air Lines aircraft at Los Angeles International Airport.

  • As the US economy opens up, investors have been piling into stocks tied to hopes of renewed growth and consumer spending.
  • “ETFs are an instant global diversification to many different companies from around that industry,” Andrew Chanin, CEO of ProcureAM, told Insider.
  • Year-to-date, some ETFs tied to oil, air travel and retail have seen record highs.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Vaccine distribution is priming the economy for a reopening later this year, and the pace so far has been faster than officials expected. Optimism is growing and investors have been piling into stocks that were beaten down by the pandemic but are now set to thrive as economic activity restarts. Investors are finding ETFs to be a solid bet on a range of reopening plays, sending some funds soaring year-to-date in 2021.

“ETFs are an instant global diversification to many different companies from around that industry,” Andrew Chanin, CEO and co-Founder of ProcureAM, told Insider. Chanin is behind UFO, an ETF focused on space exploration launched in 2019. UFO, he said, is “for investors looking to get access to the space economy and don’t want to settle or just pick a couple of names.”

Year-to-date, ETFs tracking oil, air travel, and retail are soaring, thanks to the value stocks – typically well-established companies that are often undervalued and have lower price-to-earnings ratios – in their holdings that could appreciate with a burst of new economic activity.

Cyclical industries are usually attuned to various business cycles. Revenues are higher when there is economic growth and lower in times of contraction.

Andrew Slimmon, managing director and senior portfolio manager at Morgan Stanley Investment Management, in a recent note said he is “extremely bullish” on value stocks, especially after the Federal Reserve’s decision to keep its policy in place until the US economy rebounds last week.

Here are three ETFs that are benefitting from investor sentiment around the economic reopening:

1. USO

The United States Oil Fund primarily invests in listed crude oil futures contracts and other oil-related contracts. The ETF, which debuted in 2006, may also invest in forwards and swap contracts.

The roughly $3 billion fund has gained 26% year-to-date.

Oil prices have soared since mid-February due to outages in Texas from the freezing temperatures. Refineries have taken a while to bounce back from the historic blast of winter weather, causing inventories to drop. Still, a summer rally may be in store for the oil ETF amid a tighter market.

Bank of America in February said Brent Crude prices could hit $70 a barrel in the second quarter of 2021. This year, it could average $60, the bank said, raising its average price outlook by $10 a barrel.

2. JETS

The US Global Jets ETF invests in the global airline industry, which includes airline operators and manufacturers around the world.

Launched in 2015, the roughly $11.5 billion fund has gained 25% year-to-date.

The index utilizes a tiered weighting scheme driven by market capitalization and passenger load. 70% of its weight is in US large-cap passenger airlines with the top four companies receiving 10% each. The next five largest US or Canadian airlines each receive a 4% weighting.

United Airlines and American Airlines are the ETF’s biggest holding both at 11% each, followed by Southwest Airlines and Delta Airlines at roughly 10% each. Alaska Air Group takes up 4%

The airline industry was among those that suffered the most when large swaths of the global economy shut down, halting travel in nearly every part of the world for some time. Optimism is gaining, however, when the Transportation Security Administration in mid-March revealed that air travel spiked to its highest level in nearly a year.

3. XRT

The SPDR S&P Retail ETF primarily invests in the US retail industry from apparel, automotive, computer and electronic, to department stores, general merchandise stores, and internet and direct marketing, among others.

The roughly $635 million fund has gained 42% year-to-date.

The top sectors it focuses on are internet and direct marketing at 21.5%, followed by automotive and retail at 18% each.

Holdings include Hibbett Sports, Wayfair, Best Buy, eBay, Murphy USA, Revolve Group, Magnite, Dick’s Sporting Goods, Albertsons companies, and Target, all weighing a little over 1% each.

As the economy rebounds from pandemic lows, the retail sector is making a strong comeback, driven by the pent-up consumer demand. Retail sales, according to the National Retail Federation, are expected to grow between 6.5% and 8.2% this year to more than $4.33 trillion in sales.

Many of the retail companies have also invested in enhancing their online presence to catch up on the e-commerce trend that many experts say is here to stay.

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AMC soars 15% as Reddit stocks and reopening favorites buck tech sell-off

AMC Entertainment

Shares of AMC Entertainment soared 18% on Monday, joining a broader rally as Reddit darlings and reopening favorites bucked the tech sell-off. The stock pared some gains, closing 15% higher for the day.

AMC joined Reddit favorite Gamestop on Monday, which surged 43% after the video game retailer announced that board member and Chewy founder Ryan Cohen will lead its strategic transformation. Cohen has been pushing for the company to go towards a direction similar to what e-commerce giant Amazon took.

Airline companies including Delta, Southwest, United, and American, all climbed as well on optimism of an economic recovery thanks to the Senate’s approval of the administration’s $1.9 trillion stimulus plan over the weekend. Disney, meanwhile, hit a record high as California set a date of April 1 for a limited reopening of theme parks in the state.

AMC, a meme stock and another Reddit darling, also rose on news that Wedbush analyst Michael Pachter doubled his price target from $2.50 to $5.00 on optimism of a post-pandemic environment. Pachter did note his concerns about the movie theater chain’s debt burden.

The Wedbush report cited that AMC has been taking the right re-opening precautions, which has allowed it “to drive some attendance over the last several months, while many major markets were closed for several months as the virus continued to spread.”

But it also said that “AMC may take years before it is able to revisit its prior growth strategy as it repays its growing mountain of debt.”

The analyst maintained a neutral rating that has been in place since March 2020.

Since the start of the year, AMC’s stock price has skyrocketed more than 500% driven in large part by a group of retail traders on Reddit’s Wall Street Bets forum targeting stocks shorted by hedge funds.

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