Over the last several decades, there has been a major shift in where the world’s money flows. Most of the money has gone into equities while commodities have been ignored. A recent chart highlights this situation by showing how undervalued commodities are today compared to equities. The white line in the chart represents the ratio of commodities to equities, and it shows a long period of decline since 2008. This suggests that commodities are now trading at a very cheap level relative to stock markets.

Oil Prices Are Still Where They Were 20 Years Ago

One strong example of this imbalance is oil. Despite all the economic growth, printing of money, and global inflation over the last two decades, oil prices are still near where they were 20 years ago. This doesn’t seem right when the base money supply has grown so much and the cost of most things has gone up. At some point, this gap must close. This could happen either through commodity prices rising or equities slowing down—or both.

How the Dollar Impacts the Cycle

Another part of the chart shows the US dollar’s trade-weighted index. Historically, when the dollar is very strong, the US has a hard time exporting goods. This weakens local industries and pushes other countries to make adjustments. In the past, there have been key moments like the Plaza Accord in 1985 when the US pushed other countries to strengthen their own currencies to balance trade. Similar turning points have happened before major shifts in the markets.

The Third Big Turning May Be Coming

The chart suggests we may be at another major turning point. Just like in the past—after the tech bubble and after the 1980s dollar peak—there could be a reversal now. US equities, especially tech stocks, have been growing fast. But prices have reached levels that are hard to justify with earnings. If history repeats, we could see a period where tech stocks slow down and commodities begin to rise quickly.

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