An extremely rare signal just triggered on copper

But the breakthrough was short-lived. In a stunning reversal, prices collapsed 20% in a single day when unexpected tariff exceptions were announced.

Wild moves in copper prices like this are important for investors because this precious metal is seen as a particularly reliable indicator of underlying economic health. Economists even have a nickname for it: Dr. Copper.

Surges in copper’s price, like we've seen for the past few years, are often seen as a sign of market strength. That's because rising copper prices typically signal a booming economy, reflecting strong demand from sectors like construction and manufacturing, which use a lot of copper when they're doing well.

For example, copper prices rallied in the mid-2000s off of China’s rapid industrialisation. This was a booming period for the global economy — and the S&P 500 and Dr. Copper reflected that. We also saw copper prices surge during the economic recovery after the 2008 financial crisis, alongside a healthy recovery of the S&P, and a similar pattern again after the pandemic recession.

But what’s the story this time?

Does this long rally — and 20% drop — indicate the end of the bull market? That’s what we’ll answer in this video.

While surging copper prices do signal economic health, there’s an important catch. Peaks in copper prices signal trouble ahead. The last time copper staged a major breakout like we’re seeing today was in the mid-2000s — and the peak of that rally immediately preceded a sputtering S&P, loss of momentum, and then the 2008 financial crisis and Great Recession.

So in that case, peak copper prices were a major red flag for the economy. Go back further and notice that we have another copper price peak here just before the 2001 recession caused by the dot bubble bursting.

So, what about now? Today’s stock market is at an all-time high and doesn’t seem to worry. But the recent 20% correction on copper prices indicates a potential peak, which we've seen to be a bearish signal in the past.

A massive surge in copper prices can indicate that demand has reached its peak because economic growth has overheated.

It boils down to two distinct scenarios

First, there’s the bullish case. The rally is driven by real, broad-based industrial demand supercharged by the AI and green energy revolutions. In this view, Dr. Copper is signalling true economic strength. The high-flying stock market is justified, and a new era of growth is underway. If this is true, we could see a recovery as supply-demand dynamics play out. The collapse in prices due to tariff exemptions could fade out as an anomalous blip.

But there’s also the bearish case — which is that the price surge and 20% single-day drop is showing a classic end-of-cycle peak. In this case, the speculative bubble is more than just a blip. It could drag down prices and reveal true weakness in the economy. It would imply the economy is weaker than it appears. This would imply the stock market is overlooking a potential downturn.

So, how can we tell which scenario is more likely?

There’s one key indicator to watch: the ISM manufacturing PMI. The PMI is a monthly survey that measures the health of the US manufacturing sector. A reading above 50 signals expansion, while below 50 signals contraction. It gives us a real-time pulse on broad economic activity.

If the PMI weakens and falls while copper prices fail to mount a sustained recovery, it would strongly support the bearish scenario. It would suggest the recent speculative bust revealed a true underlying weakness in the broad economy. This could warn of a potential downturn in the stock market around the corner.

However, if the PMI rises alongside copper prices, it supports the bullish scenario — confirming genuine widespread strength in the economy.

Currently, the PMI is hovering around 49, putting us at a critical inflection point.

At Capital.com, we’ll keep you updated on the price of copper and other key indicators like the PMI. Explore more insights in our Educational Hub.

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