We recently did a post applauding the departure of commodities from the risk on/risk off trade that seems to have been dogging us since 2009. Looking at where we’re at today, we may have spoken too soon, with the blood red stocks trends spilling over into the world of commodities as well.

At first glance, it may look like we’re back to everything moving in tandem, but commodities being down on a day that stocks are down does not necessarily mean there’s a return to the risk on/risk off mentality for commodities (or- in our best Yoda voice- one day does not a trend make).  We saw this in August in grains, in particular – with them rallying while stocks were down. Even now, there are a few bright green spots in the sea of red – although Orange Juice doesn’t really count (very few managers we track touch that market).

Is it possible that the risk on/risk off mindset is back? It usually isn’t a good thing for managed futures- taking away their market diversification- so we’re hopeful it is not. But there is that old saying… the only thing that rises in a falling market ends up being correlation. It’s way too soon to tell if we’re back to one big global economy trade (aka risk on/risk off), but more downside to stocks will likely mean correlations moving to one across stocks, energies, grains, softs, and more.  In the meantime, the more interesting story today may be Gold (down about $30 from its overnight high) and U.S. 10 year notes down despite the weakness in the stock market. In this atmosphere, who knows what plot twist will pop up next? Stay tuned.