Falling oil price and the effect on the stock markets

[sandgreeen]

Hello everyone,

If the oil price keeps falling, what effect do you think this will have on the stock markets, especially the S&P500? No effect at all or a big impact?

Have a good day,
Anton

[Brando]

http://tos.mx/kCmTvT   Take what you want from that chart, there have been periods of divergence in the past. Who knows, recently low oil seems to be dragging down the market. There are two competing themes, one being that low gas prices serve as a tax break that will stimulate spending, the other being that low oil is sort of a canary in the cage forecasting lowered economic demand. Is it possible that it's somewhere in between? The S&P is full of multinational companies. I'm a trader, I try to remain agnostic about direction forecasting and trade on technicals and value. Disclaimer: I'm short SPY

[hodedofome]

Correlations come and go. In the '90s oil was down (along with every other commodity) and we had a fantastic bull market. In the 2000s oil was in a huge bull market and we had a great stock market from '03-'07. Oil has been flat to down since 2011 but the market has done well. We won't know if oil is positively or negatively affecting stock prices, until it's probably too late.

[waltworks]

I predict that the stock market will remain unpredictable.

-W

[MoneyCat]

I predict that the stock market will take a short-term downturn because too many people put their money in energy stocks.  Then it will shoot right back up again because everyone will invest in shipping companies and retail stocks since consumers will have more money to spend.

[frugalnacho]

I predict that the stock market will remain unpredictable.

-W

In the short term, but what about the long term? I predict it will go up.  What about oil? Won't that go up too, especially since it's a limited resource that is being used up?  Is now a good time to invest in oil?

[mxt0133]

In the short term, but what about the long term? I predict it will go up.  What about oil? Won't that go up too, especially since it's a limited resource that is being used up?  Is now a good time to invest in oil?

Not until we figure out cold fusion.  The same could be said with wood and coal a few centuries ago.  Sure coal is probably up compared to a century ago but on an inflation adjusted basis, I doubt it.

[MoneyCat]

In the long-term, oil is probably going to lose value permanently because alternative energy is getting cheaper all the time and we're on the cusp of electric cars permanently replacing cars with ICEs.  We'll still need oil for some applications, but demand is going to plummet within a decade or

[anisotropy]

lower oil price usually means lower Canadian index. :(

[hodedofome]

Even if we switched to electric cars tomorrow, where is the electricity going to come from? The cheaper oil gets, the more demand there will be for applications to use cheap oil. Doesn't matter how many tree huggers you convert, there's still plenty of people who are swayed by price alone.

[Retired To Win]

In the short term, but what about the long term? I predict it will go up.  What about oil? Won't that go up too, especially since it's a limited resource that is being used up?  Is now a good time to invest in oil?

And maybe oil drillers and oil drilling rig companies as well.  They're all plunging big time right now.  And you know what they say about buying when there's fear and blood in the water...

[soccerluvof4]

In the short term, but what about the long term? I predict it will go up.  What about oil? Won't that go up too, especially since it's a limited resource that is being used up?  Is now a good time to invest in oil?

And maybe oil drillers and oil drilling rig companies as well.  They're all plunging big time right now.  And you know what they say about buying when there's fear and blood in the water...

Even if we switched to electric cars tomorrow, where is the electricity going to come from? The cheaper oil gets, the more demand there will be for applications to use cheap oil. Doesn't matter how many tree huggers you convert, there's still plenty of people who are swayed by price alone.

I agree with both here.  How far will oil go down ? who knows but I will take the bet and be a buyer pretty soon here because I am a firm believer despite all the new energy sources Oil will always be in demand and will increase.  I also believe Coal with have its day again as well but will catch that train when it starts to head up the hill again. The population growth alone is a huge driver for both these fuels and I think the elections alone might have alot to say about it as well. Not to mention to many of the alternative fuel sources have along ways to go and many of which are being developed by the oil companies.

[Keekster]

For those who are interested in making a speculative play on oil, will you pick one or two individual stocks like XOM or CVX to buy? Or buy a mutual fund/ETF like VDE?

[arebelspy]

For those who are interested in making a speculative play on oil, will you pick one or two individual stocks like XOM or CVX to buy? Or buy a mutual fund/ETF like VDE?

If XOM hits 10-25, I'd consider it.

http://www.joshuakennon.com/watching-oil-decline-45-made-excited/

It has a long way to fall first before it's tempting.

[sol]

For those who are interested in making a speculative play on oil, will you pick one or two individual stocks like XOM or CVX to buy? Or buy a mutual fund/ETF like VDE?

A fund like VDE is the least risky option, but also probably the least profitable. VDE is down like 25%, but oil prices are down like 40%.  And in that environment, I'd be tempted to just trade the commodity itself.

Does anyone here seriously believe oil is going to stay under $60/barrel through next summer?  Oil prices always spike during summers, right?

The safest way to play falling oil prices, though is to continue to buy index funds.  Almost 10% of S&P500 is in energy stocks anyway, so everyone who is buying the index is, at least in part, buying oil company stocks while they're down.

[hodedofome]

If I did buy anything, it would probably be a handful of energy stocks, maybe 10-20 of them. I'd buy them in equal weight and I'd probably pick the cheapest ones by EV/EBITA or something like that. Hold for 1-3 years then sell it out.

Edit: read this today and thought it was pertinent to this discussion: http://www.alphaarchitect.com/blog/2014/12/11/oil-stocks-a-real-time-case-study-in-value-investing/#.VI7xSHuVkZw

From the article, the 10 cheapest energy names that are at least $2 billion in market cap:

PBF PBF Energy
VLO Valero Energy
RIG Transocean
SM SM Energy
OIS Oil States International
HP Helmerich & Payne
IOC Interoil Corp
WNR Western Refining
OXY Occidental Petroleum
NOV National Oilwell Varco