Raw materials' stocks -- oil and gas, coal, metals and grains -- had long been the market's top performers. Now they're getting bashed without mercy.
Sky-high prices for inputs, especially energy, have pushed stocks into a sharp correction.
But, until recently, shares of energy firms, fertilizer makers, steel producers and miners had soared. They had become almost a separate stock market -- a bull market.
No more. They've fallen hard in recent weeks. Losses have really picked up steam the past two days.
The culprit: commodity prices. Steep losses in everything from corn to crude and copper to cocoa -- the very goods that have been soaring for years -- have hurt shares of producing companies.
"We have finally hit the extremes," said Joel Naroff, head of Naroff Economic Advisors in Holland, Pa. "There's conviction as long as everything supports the conviction. The moment conditions change, people run."
Each commodity seems to have its own story. Copper sank on signs of lessened demand abroad. Grain prices crashed on outlooks for improved weather in the Midwest.
Hurricane Bertha will miss the offshore oil- and gas-producing rigs in the Gulf of Mexico. Signs of weakness in Europe and Japan added to selling pressure.
Crude has sunk 6% the past two days. Natural gas swooned 9%.
So it's no surprise that exploration firms like Southwestern Energy (NYSE:SWN - News), Arena Resources (NYSE:ARD - News), Swift Energy (NYSE:SFY - News) and GeoResources (NasdaqGM:GEOI - News) are sinking.
Oil & Gas-Exploration & Development is still the No. 1 group, as of Tuesday's edition, out of the 197 industries tracked by IBD. Six of the top 10 groups come from the world of energy.
No. 2 group Energy-Other, got rocked as well. Many solar power stocks, which tend to have P/E ratios approaching the sun, have been in retreat for months. JA Solar (NasdaqGM:JASO - News), which is expected to boost its net 133% this year, has dived 43% since mid-May.
Coal stocks, also in the group, got socked a week ago when coal prices suffered a one-day crash of 10%. Arch Coal (NYSE:ACI - News) fell 17% that day.
Meanwhile, materials firms have suffered the worst losses recently.
Fertilizer kings Mosaic (NYSE:MOS - News) and Agrium (NYSE:AGU - News) have dived 20% and 16%, respectively, from their bests.
Steel maker Steel Dynamics (NasdaqGS:STLD - News) fell 19% in a four-day losing streak. Russia's Mechel (NYSE:MTL - News) fell a like amount in the past three weeks.
So are recent declines a sign that commodity prices have peaked?
"It's much too soon to assume that the commodity rally is over," said Bill O'Neill, managing partner at Logic Advisors, a commodity consultancy and broker based in Napa, Calif.
He notes that commodities have undergone several corrections during their long, rapid ascents, but have always roared to new highs.
A slowing world economy is taking its toll on industrial commodities, especially oil and copper.
But he quickly adds that the long-term fundamentals are bullish.
He cites China, India and other booming developing nations.
Meanwhile, hedge, pension and university endowment funds are shifting from stocks and debt to alternative assets such as gold, oil, ores and crops.
Commodities act as a hedge vs. rising inflation and a weak dollar.
Michael Bodino, an analyst with Coker & Palmer, an investment boutique in New Orleans, is not shocked at energy stocks' declines, given their long run-ups.
Bodino says some portfolio managers, fearing the risk-reward ratio is less attractive, probably are shifting holdings away from energy.
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