One of Wall Street’s biggest bulls says a commodity bust is rocking markets and it’s not over yet

It’s been a tough year and a half or so for markets.

2016 started with one of the toughest months for the US stock market in years and the benchmark S&P 500 is basically flat going back to October 2014.

Simply put, it’s been a tough go.

And according to John Stoltzfus, chief investment strategist at Oppenheimer, markets aren’t done getting rocked as a 20-year commodity boom continues to bust.

“We have come to believe that while the stateside sub-prime mortgage and financial sector asset bubbles are now behind us, we are currently experiencing a combination of an unravelling of the over-investment that occurred in the commodity space (oil, mining, agricultural products) based on two decades’ worth of emerging market needs (real, perceived and projected) as well as a need to change economic and investment emphasis within China from investment in production to investment for consumption,” Stoltzfus wrote in a note to clients on Monday.

Said another way, Stoltzfus thinks we’re basically dealing with the unwinding of what was effectively a bubble in commodity prices fuelled by speculative infrastructure booms in emerging markets.

Of course, this isn’t exactly news to folks who have been watching emerging markets and China and sounding the alarm on what’s been going on there for some time.

But Stoltzfus’ call, to our minds, is notable as he’s been one of the staunchest bulls on US stocks and the economy over the last few years. Currently, Stoltzfus’ year-end price target for the S&P 500 sits at 2,300; on Friday the index closed at 1,940.

Stoltzfus adds:

In our view, we remain in a period of price discovery as oil prices seek stability in an environment wherein producers become more efficient at finding and producing energy while their customers–the consumer, businesses and government–at the same time become more efficient in using energy.

Similarly, as a result of technological advances in the workplace, retraining and repositioning among the workforce will be essential in “gaming” the new technologies to achieve greater job stability and compensation in the workplace. For business owners and investors, an understanding of how the landscape is changing will likely be key to success.

From our perspective on the market radar screen, we continue believe that the market has made significant progress in regaining lost ground, but expect that we are not quite out of the woods yet.

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