Oil dropped to seven-year lows this week, spooking traders into selling. Today’s closing price of $35.62 per barrel (West Texas Intermediate crude) puts oil down 11% for the week.
Now, it would seem low oil prices would be good for the economy. In logical thinking, that is correct. But, in the investment world, it’s not even close.
The reality is, oil stocks are a big part of the S&P 500. So, when they drop, so does the index.
With the S&P 500 finishing down today (it fell 2%), it has not had two “up” days back-to-back for 27 days. That’s the longest streak since 1970. So, put that into perspective when you think about volatility.
Oil and the S&P 500 are trading in parity with each other, which is not necessarily a good thing. It means that no stocks are “safe” at the moment. But if the markets are as ready as everyone says they are for a Fed rate hike, maybe Santa will bless us with a rally a lot sooner than the final week of the month.