Commodity stocks have been volatile for years, with one-day falls or gains of 5% or more commonplace, even before the financial crisis. Lately, volatility has hit a new peak and theres no end in sight.
Ups and downs
Just look at these numbers. FTSE 100 listed giant Anglo American (LSE: AAL) is up a blistering 98% over the past three months alone yet its share price remains a hefty43% lower than it was ayear ago. BHP Billiton (LSE: BLT) has beenless extreme but still followed the same pattern, rising 18% over the past three months while still trading 44% lower than 12 months ago.
Sharp share price movements like these are impossible to predict in any sector. I called last years miningsell-off correctly, but was still shouting sell when this years rebound began. However,I would be wary of jumping into either of these two stocks right now, as I reckonthe recovery has now run out of steam. If you buy these stocks today, youre liningyourself up for a fall.
Dollar dips
There are already signs that that the partymay be over. Anglo American is down 14% in the last week alone, BHP Billiton is down 11%. The commodity recovery was partly fuelled by stimulus from China, partly from the weaker US dollar, as expectations of further Federal Reserve tightening faded. Now China looks fragile again, and the doves are flying at the Fed.
The bears are also waking from their temporary slumbers, led by uber-growlerAlbert Edwards at SocGen, who has warned that risk assets have shifted their focus from the short-term relief of dollar weakness to the increasingly dismal prospects for global growth.The weak dollar, hewarns, ismerely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves.
Prince Albert
No investorshould plan their portfolio around Albert Edwards: that way all youd hold istinned food and bottled water. But sentiment has taken a downward shift, and I suspect were in for another variable summer, as markets ponder Brexit,pore oversmoke signals from the Fed, fretover Chinese bubbles, and await the demiseof Abenomics in Japan.
Anglo American is still struggling following a weak Q1 production report, with disappointingvolumes for iron ore, metallurgical and thermal coal, copper, nickel and platinum. However,it has been boosted by a healthy$1.5bn fromselling its Niobium and Phosphates businessesin Brazil, which will help thedrive to cut net debt to 10bn by the end of this year.
Vale of tears
BHP Billiton has problems of its own, as it now faces potential fines of up to $44bn following thebursting of two wastewater dams atitsSamarco joint-venture with Vale. Thats on topof the $3bn to $6bn settlement already reached with state and federal prosecutors. JP Morgan recently said it found the miners premium valuation difficult to justify, and thelegal threats only add to the uncertainty.
Far-sightedinvestors may find a buying opportunity for both the stocks over the summer. I dont think were seeing onetoday.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.