Can metal markets help predict stock market returns?

The metals and mining sector is driving the world economy like never before. Concentration of industry at a particular level of the global value chain decides how an economy will be affected by rising metal prices seen recently. Stock markets are bound to reflect the broader effect on an economy. This leads to the question – are stock markets and metal markets correlated, and can metal markets be used to predict stock markets? Taking the LME as a proxy for metal markets and the S&P 500 as a representative stock market, stock market returns are regressed onto notional returns on metal markets and convenience yields in metal prices. Metal markets are only found to be able to predict the Metals and Mining sub-index of the S&P 500 very weakly. Overall, no conclusions may be drawn pending more rigorous testing and/or use of other explanatory variables, possibly across markets and commodities.