Years ago, comedienne Gilda Radner wrote a book about her life and fight against ovarian cancer called, It’s Always Something! These days, one could say the same about reasons for predictions that the stock market must fall down. As a friend in the building said this morning, a couple of months ago it was Ebola, now it’s cheap energy.
I write today to express my opinion that the death of this bull market is being greatly exaggerated, harkening back to Mark Twain’s famous comment. Even wild and crazy Jim Kramer made a great point on Monday about the effects of cheap oil back in the latter 1980’s. It is true also that major moves in commodities like oil create short term disruption and uncertainty, and Mr. Market does not like big moves that occur too quickly.
Adjusted for headline inflation, crude oil dropped through the late 1970’s and into the mid-80’s. In fact, in late 1985, crude plunged over 50 percent in price. But the rest of the economy was in decent condition and still recovering from the prior Great Recession of earlier that decade. Remember how much fun we had with stagflation, a combination of 13 percent inflation with no economic growth?
Of course, currently the energy sector is driving some of the best employment growth in our country. At these prices, that jobs growth will slow or cease. But as witnessed by the sectors heating up gradually with average employment gains over 200,000 per month, we should not fall back into recession.
The rest of the 1980’s and 90’s were predominantly positive for the stock market in spite of the fact that crude oil remained in the $20-$40 range except for a short spike in 1990 after Saddam Hussein invaded Kuwait prior to our invasion in early 1991.
My best guess is that prices will stabilize at a lower level than oil producers would want, there will be a cutback in the money allocated to exploration and development of new oil and gas fields, and many other sectors of our economy will benefit because we as consumers have more money in our pockets to buy Blue Bell ice cream, the latest versions of Apple or Android phones, drones from which to take great photos, and things we do not even know that we need yet!
(See chart at www.macrotrends.net/1369/crude-oil-price-history-chart. Past performance is no guarantee of future results. Advice is intended to be general in nature.)