Now that the Doha meeting of OPEC failed to produce an agreement to reduce Oil production, will the price of crude fall back to $26?
Why are the Stock Markets following the price of Oil?
Is now a good time to buy stocks?
OPEC meeting in Qatar sans Iran
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]W[/dropcap]hen Iran declined to send its Oil minister to the conference, the writing was on the wall that nothing substantive is going to come out of this OPEC meeting. Why did Iran stay away? Two reasons:
Iran is the only Shia republic that can take on the might of Sunni Saudi Arabia in the Middle East. When Saudi Arabia beheaded a Shia cleric, Ayatollah Ahmad Khatami, a leading Iranian cleric, thundered that the repercussions would bring down the Saudi ruling family.
Iran is just coming back online after lifting of sanctions. Some speculate that Iran can pump Oil at $1 per barrel! If that were to happen, it can decimate the competition and regain market share. This will keep Oil prices low for a long time.
As Oil begins its descent again, will Stocks follow?
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]W[/dropcap]hy do low petroleum prices hurt the stock market? One way to look at it is that many of the industry indices are linked to Energy stocks. Two of the greatest oil businesses in the world, Chevron and Exxon, are a part of the 30-member Dow Jones industrial average. Of the 20 biggest share price losers in the S&P 500 this year, 13 are energy businesses.
There is another concern that has investors worried that oil prices are falling because global growth is slowing, as businesses and consumers in many developing countries, particularly China, cut back on spending. Hayman Capital Management’s Kyle Bass thinks that China is still headed for a hard landing (offset 4m) and that will have a significant impact on the Global economy. The recent buoyancy in Stocks will dissipate soon, especially if the Fed comes through with its much-expected raise in tax rates.
Is it a good time to invest in the Stock market?
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]I[/dropcap]t depends on which sector you are looking at. Netflix stock is getting crushed as it failed to meet its international streaming subscriptions (2 million vs an estimate of 3.5 million). Slowing Personal Computer sales may lead to huge layoffs at Intel. Energy is already weak and these news items have a self-fulfilling effect which will drive all the stocks lower.
But fundamentally the US Stock Market is sound and as equities retreat, there will be buying opportunities.
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