In the 2000s, commodities were the hot investment theme.

Massive industrialization had begun in places like China and India. These markets needed tons of raw materials to build up their cities and infrastructure. Commodity prices soared.

But the global financial crisis put that boom to bed. And the rally has never fully gotten back on its feet...

A major commodities benchmark is still more than 50% below its 2008 high. Excitement has left the market. No one cares.

Lately, though, commodity prices have been rising. This benchmark index recently broke out to a new 52-week high... But that doesn't mean prices will keep soaring from here.

Instead, a half-century of data tells us not to expect much – even after this breakout.

Let me explain...

In the markets, when prices are rising, that trend tends to continue. You can spend years digging into why that happens, but it doesn't really matter.

If you simply study the data, you'll see that higher prices usually lead to higher prices. It's a phenomenon across asset classes all over the world.

The trend matters – plain and simple. And that's why breakouts are important.

When an asset breaks out, it means two things: 1) the trend is up, and 2) prices are moving to highs not seen in recent history.

These facts tell us the uptrend will likely continue.

Given all this, the latest move in commodities might seem promising at first. Last month, the benchmark Bloomberg Commodity Index broke out to a new 52-week high. Take a look...

The past few years have been a slog for commodities. We saw a major rally through 2020 and 2021, in the thick of the pandemic. But prices peaked in mid-2022. And they've mostly fallen since then.

That makes the recent breakout even more interesting. This is the first new 52-week high for commodities since just before the 2022 peak.

Unfortunately, this kind of breakout doesn't make commodities a surefire bet. Here's what we've seen after similar setups over the past 50 years...

Commodities can experience major booms and busts. But over the long term, they've essentially gone nowhere. They've risen just 0.8% a year since 1975.

Buying after a new 52-week high improves that result – but not by much. Similar extremes led to 1.2% gains in three months, 1.5% gains in six months, and 3.3% gains in a year.

These unimpressive gains happen because we have lots of winning and losing cases in the data. Overall, commodities were only higher a year later 63% of the time... And they suffered double-digit losses nearly a fifth of the time.

This happens because commodities can't rise forever, unlike stocks. They're physical goods tied to supply and demand. High prices reduce demand... which leads to lower prices.

So while the trend is still important, it's less important in this kind of market.

This is the first commodities breakout we've seen in years. And that means prices will likely keep rising.

But we shouldn't expect an all-out boom... or even a surge above 2022 levels anytime soon. While this breakout brings a tinge of excitement, it's still too early to assume it's the start of a multiyear commodities bull market.

Good investing,

Brett Eversole