The plunge in crude on Friday could be the start of a collapse in commodities, strategist Albert Edwards says.
WTI crude oil (CL1:COM) (NYSEARCA:USO) fell 6%, while Brent (CO1:COM) (BNO) lost nearly 4% on Friday. Energy stocks (XLE) had their worst week since March 2020.
SocGen’s Edwards, a noted bear, tweeted that there are echoes of what happened in 2008.
Noting an article when he made a similar forecast, Edwards tweeted: “This article from Oct 08 notes when the oil price was $150 I said the coming recession would take it to $60.”
“Today’s price action may be the start of a similar commodity collapse as the Fed crash land the economy. I predict negative headline CPI inflation.”
Energy (XLE) is the vulnerable last man standing, MKM chief market technician Jonathan Krinsky said midweek.
“XLE is still ~28% above its 200 DMA, and +52% YTD. If the year were to end now, it would be the best year on record for Energy back to 1991,” Krinsky said. “The second best year was last year (+48%).”
“We also think this is what is needed to see long/short momentum unwind, and ultimately put in a more durable bottom. So even if beaten-down growth names go down further, it’s likely that Energy comes down at a faster rate.”
See why it’s time for energy investors to talk about demand destruction.