Two-Minute Market Focus: Keeping An Eye on Future Returns as Commodities Lead Markets Higher

Key Takeaways

• Commodities led markets higher over the past 30 days, supported in part by renewed geopolitical tensions and strain across global energy markets.

• International stocks and the S&P 500 were up roughly 2%, while bonds remained quiet and small-cap stocks were slightly lower.

• Net U.S. equity issuance can provide warning signs about future returns when issuance rises meaningfully, while global bond yields—particularly in Japan—remain an important early indicator of potential market volatility.

Commodities Lead Recent Market Performance

Over the past 30 days, commodities have led markets higher, driven in part by renewed conflict near the Strait of Hormuz and continued targeting of energy infrastructure in the Russia-Ukraine war. These developments have added complexity to global energy markets and created pressure in areas such as diesel and crack spreads. International stocks and the S&P 500 were both up roughly 2%, while the bond market was nearly flat and small-cap stocks were modestly lower.

Net Equity Issuance Remains Muted by Buybacks

Recent analysis of net U.S. equity issuance shows a notable distinction from the issuance wave of the 1990s and mid-2000s. While issuance has ticked higher due to several high-profile IPOs and future potential offerings, the ongoing buyback wave has helped keep net issuance relatively low. This matters because a meaningful rise in net issuance can serve as a warning sign, as higher issuance has historically been associated with lower forward returns across several sectors. Today’s issuance, however, appears more closely tied to economic investment, including artificial intelligence capital expenditures, rather than speculative buildouts with limited business purpose.

Global Bond Yields Remain an Early Warning Indicator

Global bond yields remain an important area to watch closely for future market activity and potential volatility. The 10-year U.S. Treasury yield remains below the longer-term average range for the referenced time series, suggesting it has not yet moved into more problematic territory. Japan’s 10-year bond yield is also notable, rising from negative levels in prior years to around 3%. A sharp move higher in Japanese yields or a currency disruption could create volatility across global markets, making global yields an important early warning indicator.

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