What Do Higher Oil Prices Mean for Stocks?

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MARKET TRENDS

What Do Higher Oil Prices Mean for Stocks?

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Energy has been the story in the markets for at least the past year.

Prior to last week, when investors talked about the energy sector, it was in relation to how it would feed AI.

But now, because of the war in the Middle East, the main topic on everyone’s mind when it comes to energy is the surge in oil prices.

On February 20, I told readers in my Technical Pattern Profits VIP Trading Service that if oil got above $65, it was likely going to $80 quickly – and after it reached $80, I said it would go on to $95.

Yesterday, just 17 days after my initial prediction, it crossed $100.

There have only been three times in the past 44 years that oil has spiked above $100 per barrel. It happened in 2008, from 2011 to 2014, and in 2022 coming out of the pandemic.

Oil is back down in the low $80s as I write, but it’s still markedly higher than the mid-$50s prices we saw near the end of last year.

That obviously causes pain at the pump and raises inflation, as everything gets more costly to ship.

But what does it mean for stocks?

Let’s look at five previous periods when oil spiked.

In 1990, when Iraq invaded Kuwait, oil prices quickly doubled from around $20 per barrel to more than $40. You can see that during that move in oil, the S&P 500 had a nearly identical inverse reaction.View larger image

Nine years later, as the dot-com boom was entering its final phase, oil surged from about $10 per barrel to nearly $40 a year and a half later.

Interestingly, as oil rose, the S&P – caught in the final throes of dot-com mania – did not slide immediately. In fact, it continued to rise even though the rally was clearly running out of gas (pun intended).

Then, just as oil peaked, the market began its plummet.View larger image

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$100 Oil

The first time oil broke above $100 was January 2, 2008.

Like we saw during the dot-com boom, as oil began its rise, the market didn’t drop immediately. But that $100 level proved too much. In conjunction with the global financial crisis, the market melted down. Oil ascending to $145 put additional pressure on stocks.View larger image

The global recession brought oil prices back in check, but they quickly began surging again when the Arab Spring uprisings began in December 2010. Oil bounced around between roughly $75 and $110 for the next three years.

After the pounding from the financial crisis, stocks got up off the mat, even as oil prices doubled between 2009 and 2011 and then stayed elevated for several years. The S&P continued higher despite the high price of oil.View larger image

The COVID crash in 2020 obliterated both oil prices and stock prices. They quickly recovered together until oil hit $100, which was around the same time that stocks topped out and the 2022 bear market began.View larger image

So what have we learned?

Investing when oil prices are rising is like driving during a bad storm. It doesn’t necessarily mean that a crash is coming and it’s time to panic. But you should be paying closer attention and proceeding more carefully.

Good investing,

MarcLeave a Comment

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I was born on 6 August 1956 in San Francisco, California to Janet and (the late) Richard Hovis. I grew up in Santa Monica, California where I attended elementary, junior high school, and high school (graduating in 1974), in addition to involvement in sports and recreation (Little League +, the Boy’s Club ++). Further, it was in elementary school – St. Augustine’s By-the -Sea Parish School that I found, and made the choice to truly journey with God. I attended Arizona State University from 1974 to 1977 – seeking to become an architect, however, I was not accepted, and, as such, I graduated with a Liberal Arts degree. Upon graduation from Arizona State University, I attended Cal Poly San Luis Obispo and studied City and Regional Planning at the Master’s level. I successfully completed one (1) year in a two (2) year program – I did not complete the Master’s degree in City and Regional Planning – due to personal reasons. I returned to Santa Monica where I started (October 1979) my career as graphic designer with Exxon Company, USA. I spent five years with Exxon Company, USA. While working with Exxon Company, USA I was accepted into architectural school – Sci-Arc in Southern California, however, I did not attend preferring to stay with Exxon.. In 1982 I married Laura Flosi and in April 1983 we had our one and only child – Lauren Alain Hovis – a gift from God. We moved to Phoenix, Arizona in 1984 from Los Angeles, where I went to work as a graphic designer with Kitchell CEM (from 1985 -1987). From 1987 – 1995 I was an independent contractor, and a registered representative in mortgage finance, financial management, graphic design, and drafting. Further, I attended the University of Phoenix and successfully obtained a Master’s in Business Administration (MBA) in 1982. I was also a member of the Scottsdale Jaycees, where I became very involved in community events and projects. In 1994, I accepted a cartography position with the Defense Mapping Agency in Reston, Virginia. As such, I relocated from Phoenix to Reston. In 1998, I was accepted and worked as a Visual Information Officer with the Central Intelligence Agency. In 2002, I worked as a Support Officer until my retirement (due to a need for shoulder surgery) in September 2018. Away from my Federal Government service, I have been involved in various organizations and activities in Northern Virginia. In November of 2011, I married Rebecca Ouellette in Santa Monica, California. I reside in San Tan Valley, AZ with my two hamster - Jess and Timothy, our fish, our lizard - RJ Lizard., and our cats - Pearl and Grey. As to hobbies, I enjoy playing sports, attending sporting events, mentoring individuals from financial management to hamsters, building models, photography, travel, multimedia design, managing partner for RJ Hamster, and jazz – smooth jazz to a samba or a bossa nova. Love and God Bless, Peter – aka RJ Hamster Jo hi

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