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Considerable studies have examined the relationship between commodity markets and stock markets. This paper studies the cyclical relationship between commodity markets and stock markets with implications for investing based on index relationships. Stock markets are represented by the U.S. S&P 500 index and aggregate commodity markets by the U.S. producer price index (PPI). Tradeable market indexes readily available to investors, namely the S&P GSCI Index and the Bloomberg Commodity Index (BCOM), are also studied. An optimal bandpass filter is used to estimate the cyclical component using a pricing-performance measure of the S&P 500 relative to the PPI, based on annual data from 1871 to 2022. The S&P GSCI and the BCOM indexes are also used to test the robustness of the findings. The impacts of the financial crisis of 2008 and the coronavirus pandemic are also assessed. The overriding conclusion of the study is that a cyclical relationship exists between stock markets and commodity markets for both aggregate and tradeable indexes which can last, from peak to peak, approximately 31 years. Measuring returns and risks in a manner consistent with these cycles can shed new light on the usefulness of commodity investing via tradeable indexes in seeking efficient portfolios.

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Journal of Risk and Financial Management