Stock Markets Have Followed Oil Prices Off a Cliff. What's Going On?

Author: sajsmith
Publication: 
LinkedIn

Date: February 1, 2016

One of the mysteries of the stock market's decline at the beginning of 2016 is why such a precipitous fall occurred at a time when economies are reaping the benefits of lower energy costs.

As oil prices parachuted to depths not seen since the tech crash of the early 2000s, factories, transportation carriers, and consumers pocketed substantial savings on fuel costs. The plunge in oil prices transfers about $1,500 every year from Saudi Arabia, Russia, Venezuela and other oil producers to the pockets of every US driver. The US economy, which is based in large part on consumer spending, should be soaring, and the market valuation of most firms (sans energy producers) should hit new highs.

Why is this not happening, and why might we be heading for a recession?

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