The Baltic Dry Index (BDI) has been making news lately after its impressive performance over the last few weeks. For those unfamiliar with the BDI, it measures the cost to transport raw materials by sea, and it is currently on a 16-day winning streak in which it has risen 126%. The last five trading days have seen the index rise 14.63%, 13.83%, 9.61%, 10.54%, and 8.80% -- talk about a rally!
And while the Baltic Dry doesn't have much correlation with US stocks, it does follow China's equity market pretty closely. Over the Baltic Dry's 16-day winning streak, China's Shanghai Composite index is up 14% as well, and it really looks like it's beginning to turn a corner. Below we provide charts of the Baltic Dry Index compared to both the S&P 500 and China's Shanghai Composite. While the percentage changes are more extreme for the Baltic Dry, the direction of its move is very similar to China and not so similar to the US. Given the fact that China is such an export based economy, it's no surprise that this trend exists.
Finally, it's important to note a few things regarding the Baltic Dry. First, the index declined more than 94% from its peak to trough over the last two years. While it has made a nice move upward in the past few weeks, it is still way, way down from its highs. Second, 16-day winning streaks are really not a big deal for the Baltic Dry. As shown in the chart below, the current winning streak is just a drop in the bucket when looking at all winning streaks for the index since 1985. In fact, the record winning streak for the Baltic Dry was 48 up days in a row back in late 2004, which means we need two more 16-day winning streaks to match that.
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