NEW YORK: Contrary to popular belief, oil’s breakneck decline from its record price set in July hasn’t given stocks the hoped for tailwind.
While crude oil has fallen nearly 30 percent from the July 11 record of $147.27 a barrel, stocks have inched up a meager 2.0 percent and both oil and Wall Street are considered by market technicians to be in a bear market. This may have surprised some market watchers as it certainly seemed that stocks’ decline from their own all-time high hit in October 2007, was in virtual lockstep with a rise in the price of oil. In October 2007, oil was trading at a relatively low $80 a barrel.
One reason for stocks not reaping the benefits from oil’s downturn may be that one of the main factors behind oil’s drop since July is also worrying for US equities: Demand for crude has dropped off as economic growth in many countries has slowed. “The backdrop of slowing economies around the world is not a perfect backdrop to buy equities into,” said Ted Oberhaus, manager of equity trading Lord Abbett & Co. in Jersey City, New Jersey. “We still have a looming credit crisis... we’re not yet out of the woods.”
Concerns about the global economy aside, the big weight that energy companies like ExxonMobil and Chevron have on the US stock market may explain some of the muted reaction in the stock market, analysts said. Oil stocks make up about 15 percent of the S&P 500 index. Since July, Chevron has dropped 13 percent and Exxon has shed 9.0 percent.
The price of oil plummeted to a five-month low on Tuesday, after Hurricane Gustav spared major US Gulf oil facilities, initially sending stocks up more than 1.0 percent.