June 12, 2024: Transition has started

Over the last 100 years, there has been a repeating pattern between the Dow Jones Industrial Average and the Commodity Research Bureau, better known as the CRB.

This transition between the two indexes since 1950 develops about every 18 years. The periods when the CRB is outperforming the Dow since 1950 have lasted 12 years.

Looking at a longer-term perspective, starting at 1900, these transitions favouring the CRB, on average, endured for 13.5 years (Chart 1).

Over the past 25 years (Chart 2), the Commodity Research Bureau outperformed the Dow from 2000 to 2011. A transition appears to be developing again, starting in 2020. If the duration of the CRB outperforming the Dow is similar to the past 100 years, then commodities should be dominate over the Dow over the next 8 years.

During these past periods when the CRB is outperforming the Dow, the equity index seldom made new highs. If a new high was posted (i.e. 2007), it was quickly reversed (Chart 3).

Steady advances with the Dow did not occur until the Dow was outperforming the CRB (1920-1930, 1949-1970, 1983-2000, 2012-2020).

Bottom line: The current superior performance of the CRB over the Dow, is a reoccurring pattern. These periods normally bring higher-than-normal inflation, and confined growth in equities.