The fairy tale told in early 2015 was that a collapse in the price of Crude Oil and other commodities was going to be huge boon for the U.S. consumer, the economy, and the financial markets.

In the past month, as we have witnessed multi-year lows across the commodity space, the story seems to have changed. The decline in commodities is now being viewed as a harbinger of a slowing global economy, wreaking havoc on financial markets.

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What did the Pollyannish forecasts at the start of the year miss?

1) The impact of declining commodity prices on S&P 500 earnings, which have now declined (YoY) in each of the last four quarters.

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2) The impact of declining commodity prices on the credit markets, particularly at the lower end of the credit spectrum.

-CCC high yield bond spreads are at their widest level since 2009.

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-Distressed Bonds have lost more than half of their value since their peak in 2014.

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3) The impact of declining commodity prices on the currency markets, particularly in Emerging Markets.

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Capitulation?

Capitulation is defined as the action of surrendering or ceasing to resist an opponent or demand. In investing, capitulation is a good thing as it often coincides with a wave of selling near the end of a decline.

The challenge is in differentiating between capitulation that marks a short-term bottom from one that marks a cyclical or secular low. Unfortunately, there is no easy rule to follow.

There are some real signs of real capitulation today in the commodities market. Fears of further declines are heightened and most seem to be in agreement that these declines will negatively impact financial markets. This is a very different picture than the start of the year when the consensus view was overwhelmingly sanguine.

The question for investors is whether stocks and bonds, which are supposed to be forward-looking, are already discounting a further collapse in Crude Oil and commodities.