Do Copper Prices Lead the Broad Equity Market?

A reader asked: “Do copper futures reliably lead the market, as some believe.” The hypothesis is that demand for copper is a reliable leading indicator of economic activity and therefore of future corporate earnings reports and equity prices. In lieu of a long-run set of copper futures data, we use the monthly price index for copper base scrap (not seasonally adjusted) from the “Metal and Metal Products” group of the Producer Price Index components. This series is much longer than those for other copper proxies, extending back to the beginning of 1957, thereby enabling analyses across multiple economic expansions and contractions. Using the monthly copper scrap price index and monthly levels of the S&P 500 Index for January 1957 through June 2011 (654 months), we find that: (more…)