The Metal That Failed Economics

Dr. Copper, Dr. Copper, Dr. Copper…

Can we please stop with the “Dr. Copper” references? Not only does Copper not deserve a PhD in economics, by any unbiased measure it has failed Economics 101.


Repeat after me: because the direction of Copper by itself tells you nothing about the U.S. economy or the U.S. stock market.

Let’s start with stocks.

Since 1972, the correlation between the return of Copper in a given year and the return of the S&P 500 is essentially 0 (0.06). In plain English, that means it’s basically a coin flip as to whether they will move in the same direction.


Is Copper being up better for the S&P 500? No. The opposite is actually true on average. The S&P 500 has gained 12.3% annualized in years when Copper is down versus only 8.3% when Copper is up.


True, there are many times when Copper and stocks move together (longest run: 2003 – 2010), but that is a much different statement than they “have to” or are “likely to” move together. If you tell me Copper is going higher (ex: 2003-07) next year I would say the odds favor the S&P 500 going higher as well but I would make the same prediction if you told me Copper was going lower (ex: 1995-99). The corollary: Copper tells you nothing about the current or future direction of the S&P 500. They move together at times, and they move in opposite directions at other times.


What about the U.S. economy? Is Copper a better signal there?

Not exactly. The correlation between Copper and U.S. Real GDP is slightly negative (-.04).


Similar to U.S. equities, that does not mean that there are not times when Copper is down and the U.S. Economy is in recession. There are. We last saw that in 2008 during a global deflationary collapse. But the number of other times that Copper is down (Ex: 1983-84, 1995-99, 2013-15) with no ensuing recession is too great to be of any value as an indicator.

Even in 2008, Copper did not peak until July, when the U.S. economy was already 7 months into a recession. What value did it provide at that point? Certainly no more than the U.S. stock market itself which tends to peak ahead of U.S. recessions (October 2007 in this case).


I understand this may come as a shock to some because the use of the term “Dr. Copper” is widespread, often as a harbinger of doom. How can these so-called “experts” be wrong? Isn’t Copper used in many parts of the economy (homes, factories, electronics, etc.) and therefore a gauge of demand and growth?

Yes, it can be at times but it is just one gauge among many in what is a complex and diversified U.S. economy and stock market. Also, the price of Copper responds to not just demand but supply as well and it is not always easy to differentiate between the two.

We recently saw Copper rally 14 days in row, something it had never done before in history. Is that good news or bad news for the U.S. economy and stock market? You are now equipped to answer that question based not on fairy-tales but on facts.


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Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

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