S&P 500 to Commodity Index Ratio Hits Record High Amid Extreme Divergence

The S&P 500 to Commodity Index ratio has tripled since 2022, reaching an all-time high. The S&P 500 has surged 71%, while the Commodity Price Index—tracking energy, metals, agriculture, and fertilizers—has dropped 31%. This divergence surpasses even the Dot-Com Bubble extremes, with some commodities at decades-low levels.

Wells Fargo Investment Institute warns investors to reassess portfolio risk, urging a shift from small-cap equities to quality bonds. Paul Christopher, head of global investment strategy, advises trimming equity allocations ahead of expected volatility. "Even as the S&P 500 Index makes new all-time highs, investors may want to reduce exposure," he noted, citing potential policy or economic shocks.

The S&P 500 briefly topped 6,500 before retreating, but large-cap tech remains a favored sector. The commodities slump contrasts sharply with equity market euphoria, signaling a potential inflection point for raw materials.