Market Recap
The S&P 500 gained 5.15% in May, bringing its year-to-date return to 10.73%. Emerging markets, represented by the EEM ETF, continued to outperform, rising 7.20% in May and 24.15% year to date.
Going into May, our momentum equity ETF strategy shifted away from the developed international exposure it had maintained for the last year and into a blend of IJR and QQQ, rotating exposure to small-cap U.S. stocks and the Nasdaq 100.
Portfolio Notes
At Incline, we believe portfolio and financial planning should start with understanding the broader macro environment. While headlines are focused on AI, SpaceX, and the largest technology stocks, we think one of the more important long-term trends is happening in the old economy: commodities, energy, materials, and infrastructure.
For the last few decades, capital has flowed heavily toward technology and financial assets, while investment in mining, energy production, and physical infrastructure has lagged. That underinvestment in supply is now meeting a massive wave of demand from data centers, electrification, defense spending, and reshoring. This is sometimes described as the “revenge of the old economy.”
Back in 2022, we wrote that commodities had broken out of a 12-year bear market and that large-scale supply and demand factors were signaling the potential for a long period of strong performance. Four years later, the picture is clearer. Since 2020, commodities have quietly kept pace with the S&P 500, and we believe this trend may still be in its early stages with the potential to evolve into a sustained period of commodities outperforming equities.
Jeff Currie, the former head of commodities research at Goldman Sachs, recently wrote a strong piece on this same theme:
The old economy begins to take its revenge
Chart of the Month
The chart below shows real assets versus financial asset prices. When the line rises, real assets are outperforming financial assets. The last two major real asset cycles occurred during the inflationary 1960s and 1970s, and again during the China-driven commodity supercycle of the early 2000s. So far, the 2020s move has been small by comparison, which may suggest this trend still has room to run.
