Investors who invest in the equity market witness fluctuations in the equities or stocks largely influenced by the numerous economic indicators such as interest rates, CPI, WPI, and unemployment data, industrial production, and GDP, etc. Apart from this, there are a large no. of institutional block trades and economic reports. But, there is one factor we frequently overlooked is the influence of commodity prices on these equities, bonds, and different sectors. However, the movement in the commodity market and fluctuation in prices of commodities do affect the price trends in the equity market and tremendously impact the earnings of publically listed companies and sectors.
I don’t understand why we haven’t given much thought earlier. Many commodities are largely used for consumption purposes in different sectors so any fluctuation in the prices of commodities can affect respective sectors immensely.
In this article, we’re going to mention how the fluctuation in commodity prices affects the different sectors.
Impact of lumber prices on the real-estate sector
As you know that real-estate is one of the largest employers in the country where lumber (or woods), steel, and iron used as important commodities inputs. Any fluctuation in these commodities can have ripple effects on this sector especially lumber prices. A normal person like us wouldn’t care much about lumber prices unless he/she in the process of building a house.
Therefore, any changes in the prices of lumber and other commodities could have an immediate impact on the real estate sector. When there is a rise in price, the real estate sector could suffer a slowdown which ultimately, affects the workers who are working on wages and the wages paid to them may decline during that period.
But, truth to be told, real estate is not the only sector that affects by such commodities even the other type of companies like restaurants, retail chains, and pharmaceutical companies watch closely.
Impact of metal prices on the auto sector
Real-estate is not the only largest sector in the country; there are other large sectors which play a major role in shaping the country’s economy. And another name in that list is auto-sector. It is a heavy manufacturing industry which employs a large no. of people. There are many commodities like crude oil and metal are used as inputs in the auto sector. Any fluctuation in the prices of metal could hit the auto sector. If the prices rise, there will be no alternative but to pass on that to the consumer.
Impact of cotton prices on the apparel industry
Cotton is one commodity that commonly used in the apparel industry in a wide variety of products. For instance, many summer clothes contain a large amount of cotton therefore, rising prices can have an adverse impact on the retailer and vice-versa.
Impact of oil prices on the retail sector
You may not know but any fluctuation in crude oil prices adversely impact on the performance of the retail sector. Most of us think only about our wallet when we pay on petrol pump however the fluctuation in oil prices could affect the global economy on a huge scale.
It is because most products available at the retail store are either made up of plastic or packaged in plastic. And plastic is a by-oil product of oil manufacturing. So, if there is a rise in crude oil prices, the price of plastics rise too. When that happens, many retail companies left with two choices:
- Either they pass on that rise to the consumer which may or may not hurt the competitive nature of the retail market.
- The second alternative is to absorb that all by them. However, a company would have to pay from his/her own margins.
Similarly, there are other commodities like corn, coffee, gold, and wheat that have a direct impact on different sectors.
Final thoughts: –
Although, there are a variety of factors that can move the market commodities prices is one of the major ones. If you are planning to invest in a particular sector, we would recommend you to take a look at the particular commodity that can impact the sector and ultimately, the stocks of the company you invested in.
Hope, this article helped you in a way you expected it to be. Nevertheless, if you have any query or would like to add something then doesn’t forget to mention in the comment section below.