Commodities as a whole are outperforming the equity benchmark S&P 500 index so far this year. But can it last?
Both gold and silver are up around 9% or so in 2014. On the energy side, crude oil gained 4% while natural gas has gained nearly 15%. As for stocks, the S&P 500 is just about flat for the year.
That may change, says commodities expert and portfolio manager John Stephenson of First Asset Investment Management. The author of "The Little Book of Commodity Investing" believes commodities may be a long-term buy but, for the time being, are not.
"I love commodities and, generally speaking, I'm pretty bullish," says Stephenson on CNBC's Street Signs' Talking Numbers segment. "But, I have to be bearish on them right now."
Stephenson sees specific factors affecting several commodities that may soon reverse. He credits short-coverings in gold as the reason the yellow metal is up for the year. Cold weather has caused a sharp increase in natural gas as inventories dip below their five-year average. However, he believes increased gas drilling in North America will soon clip its rally. As well, oil's break above $100 per barrel could be threatened as added barrels may potentially come in from Libya, Iran, and Iraq down the road. On top of all that, Stephenson notes that China's Purchase Managers Index is at a seven-year low.
"All of that means commodity prices are probably going to go down," says Stephenson. "I would be a seller right now. I would not be a buyer of commodities in general right now."
CNBC contributor Andrew Busch, editor and publisher of The Busch Update, says the technicals are showing a potentially bullish signal for commodities. After trading below a downtrend since 2012, the Deutsche Bank Commodities ETF (the DBC) broke above its resistance level on February 14. Busch says investors should use that downtrend line as a buying level should it get tested.
"Once you break a resistance on the upside, you come back to test it," says Busch. "That's when I want to buy it."
"Technically, I don't think this is that bad," he says. "It's actually indicating that you've formed a bottom and you really should give it a shot to go long at some point."
To see the full discussion on what's next for commodities with Stephenson on the fundamentals and Busch on the technicals, watch the video above.
- Commodity Markets
- John Stephenson