How Oil Prices Move the Stock Market

Submitted by Academy Wealth Advisers on February 18th, 2016

Written by Rick Welch on February 18, 2016

Are low oil prices a good or bad thing? Both. For the American consumer, low oil prices mean lower prices at the gas pump which can add up to annual savings of about $750. Many of these dollars will be spent on discretionary items (dinner out, travel and entertainment) and some will go into savings or towards paying down debt.

While the consumer has benefitted, the domestic energy sector has been hit hard with Q4 2015 earnings expected to fall by over 50%. As the plunge in oil prices in 2015 intensified, mass layoffs in the oil field became the norm as did large scale cutbacks in exploration capital investment. In early 2016, investors have seen the struggles of this important sector (by value about 12% of the S&P 500) spill over to the broader market.

From a correlation perspective, the dual plunges of oil and stock prices should be no surprise. Since the start of 2015, oil and stock prices have moved in synch (together) on about 80% of all trading days. A recent article from Bloomberg BusinessWeek is a great read on the correlation between oil and stock prices and what historically low oil prices mean to economic growth, corporate earnings and the likelihood of a resulting recession in 2016 (very low).

Please follow the link below and enjoy. Take a few minutes and watch the video - key point is that the current plunging oil prices are not caused by slowing demand, but, rather but a global oversupply.

http://www.bloomberg.com/news/articles/2016-02-11/oil-is-the-cheap-date-...