Wall Street History

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Wall Street History

02/19/2016

The Impact of a Collapsing Oil Price on the Markets

So I was curious to see how various equity markets and the economy have responded since the collapse in the oil price from the highs of the week ending 6/20/14 to now.

For starters, U.S. GDP has performed as follows since the second quarter of 2014.

Q3 ’14... 4.3 percent (ann.)
Q4 ’14... 2.1
Q1 ’15... 0.6
Q2 ’15... 3.9
Q3 ’15... 2.0
Q4 ’15... 0.7

If you took a simple average of the six quarters, you have annualized growth of 2.3 percent, the same putrid number we’ve seen since the end of the Great Recession.

Meanwhile....

Oil (West Texas Intermediate)

Week ending....

6/20/14... $106.83 (peaked at $107.95  that week)

2/12/16... $29.44 (hit $26.00 during the week)

So we’ve all been told that a collapsing oil price would be good for the consumer, consumer spending, and, you’d think, equity markets.

Dow Jones

6/20/14... 16947
2/12/16... 15973

S&P 500

6/20/14... 1962
2/12/16... 1864

Nasdaq

6/20/14... 4368
2/12/16... 4337

Toronto S&P/TSX Comp. (heavily energy, nat. resources dependent)

6/20/14... 15119
2/12/16... 12381

London FTSE

6/20/14... 6825
2/12/16... 5707

Tokyo Nikkei

6/20/14... 15349
2/12/16... 14952

Bull / Bear sentiment reading [Investors Intelligence... contrarian indicator]

6/20/14... 61.4 / 16.3
2/12/16... 24.7 / 39.2

So you can see from the above the impact collapsing oil has had on markets around the world.  Yes, this is but one factor.  The action of the central banks and a slowing Chinese economy have been two other very critical issues.

But future market historians will look at this the next time we see oil has soared, investment has come roaring back, and you’re wondering what will happen when the cycle turns back down.

*The source for all the above is my own rather extensive database.

Wall Street History will return in two weeks.

Brian Trumbore

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