A performance map gives good perspective on returns this year versus the past. What really jumps out is the return of what could be a commodity super-cycle like what we saw at the beginning of the 21st century. We have had a combination of demand shock from monetary and fiscal policy with now a supply shock from sanctions and war. While the demand shock may dissipate as the Fed tightens and there is no further fiscal action, the disruption supply shock may not be solved in the near-term. Sanctions may not be easily reversed, and the war may prove to be a stalemate. Logistics will still be a near-term problem; however, under investment will be the longer-term cycle issue.
A longer-term supply shock will place negative pressure on bonds especially if the Fed raises rates during this shock. Stocks will see margin erode from elevated levels which will place downward pressure on equities when coupled with a higher discount rate. Investor should increase their commodity exposure where backwardation supports index exposure.
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