October 20th Weekly Market Update
The S&P 500 fell 1% last week (October 13 – 17, 2014) in volatile trading, leading market participants and media pundits to speculate on how far the stock market slide—now just over 6% from the September 18, 2014, closing Weekly Market Commentary “Pullback Perspective,” we cited the economic backdrop, central bank support, and valuations as reasons the pullback was unlikely to turn into a bear market (a 20% decline). This week we turn to an area that has already entered bear market territory and discuss our outlook for oil and the energy sector.
Why Does Oil Matter?
Oil has a significant impact on several key sectors of the economy:
- Consumer spending. Consumers spend, on average, 4% of their income on energy (including oil, natural gas, refined gasoline, etc.). As a result, a sharp drop in energy costs can help provide a boost to consumer spending, particularly important as holiday shopping and winter heating season approach.
- Capital Spending. Energy accounts for one-quarter of all capital spending globally, more than any other sector. Oil and gas exploration and production is very capital intensive, and significant infrastructure investments are needed to support the U.S. energy boom.
- Transport sector. Oil influences transports as a cost (fuel for airlines,shippers, trucks, etc.), but it also provides growth opportunities as an increasing amount of oil and petroleum products are transported by truck and rail due to the boom in U.S. energy production.
For the full article: Oil Hits the Skids