2014: Battleground year for stocks vs. commodities

2014: Battleground year for stocks vs. commodities
Commodities have lagged stocks for third year in a row; gold, silver hit hard
SAN FRANCISCO (MarketWatch) — U.S. equities outperformed commodities this year by a long shot, but commodities have a good chance to regain investor favor in 2014 after three consecutive years of declines.

“Something has got to give in 2014,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

As the investing game draws to an end for the year, the near final score is: commodities down roughly 9%, based on the Dow Jones-UBS Commodity Index (DJI:XX JUBS) The Dow Jones-UBS Commodity Index Total Return Exchange-Traded Note (NAR JP) has lost 10% year to date. The S&P 500 Index (SNC:SPX) , on the other hand, has surged 25%, on track for its best year since 2003.

“Based off historical norms, either stocks are way too high or commodities are way too low. The odds are high for either a massive commodity rally or a rather large stock market selloff,” said Flynn.

This year will mark a third year in a row in which commodities have underperformed U.S. equities. Including 2013, the Dow-Jones UBS Commodity Index has fallen for each of the last three years, as the S&P 500 Index scored significant gains over the past two.

“The biggest story in the markets in 2013 to 2014 is commodities against stocks as an asset class,” said Flynn.

“There has been an under-investment in commodities and usually that has consequences,” he said. “It normally creates an environment where tight supply emerges … [and] the cost of production and the low prices mean we may not see the investment we need to meet demand.”

So commodities and equities are poised for “some major moves in the coming year,” Flynn said. http://www.marketwatch.com/story/2014-battleg...2013-12-13