Stock Market Question

[Snaggletiger]

Last week, the DOW got hammered pretty good.  I don't follow it that much and don't have a good understanding of the how and why's that make it all rise and fall.  But, I saw two different reports on the reason it got hit last week was because oil/gas prices have dropped to a 10 year low.  Neither report could point to a specific reason as to why that would be.  They both just said investors were scared of the unpredictability because of the price drop.

Can someone explain what I'm missing here?  Logic tends to make you think lower gas prices means more people are traveling.  More people have extra money to spend.  Consumers getting out and "consuming" is a good thing....right?  I filled up my SUV for under $50.00 yesterday.  That makes me a happy consumer. 

[Ogre]

It strikes fear in the market because lower prices means lower revenues and potentially lower profits for the oil industry.  The oil industry makes up 10% of the S&P500 and it spooks investors to know that they're going to be looking at a reduction in revenue/profits in a huge sector of the market.

You're right in that it would make sense that lower oil prices helps the overall economy, but investors are looking at the near-term effect.  It probably means a market correction is coming (and long overdue in my opinion). 

[WiregrassTiger]

It strikes fear in the market because lower prices means lower revenues and potentially lower profits for the oil industry.  The oil industry makes up 10% of the S&P500 and it spooks investors to know that they're going to be looking at a reduction in revenue/profits in a huge sector of the market.

You're right in that it would make sense that lower oil prices helps the overall economy, but investors are looking at the near-term effect.  It probably means a market correction is coming (and long overdue in my opinion).

^^This is my understanding too. We love low gas prices but when you look at that mutual fund and/or exxon stock, it's going to be down because of their reduced profits.

Doesn't matter if you don't plan on selling/retiring anytime soon. Just a good opportunity to buy more energy stocks and enjoy cheaper gas.

[GH2001]

Ogre nailed it.

Although I don't agree with it striking fear - it does. Those revenues will simply get moved to another sector like transportation or technology. A lot of the way the stock market works is a crock of crap - mostly based off speculation, shorting, profit taking and credit/margin.

[Godfather]

You also have to remember that the DJIA is only 30 stocks.

3M   
American Express   
AT&T   
Boeing   
Caterpillar   
Chevron   
Cisco Systems
Coca-Cola
DuPont
ExxonMobil   
General Electric
Goldman Sachs   
The Home Depot   
Intel
IBM
Johnson & Johnson   
JPMorgan Chase   
McDonald's   
Merck   
Microsoft   
Nike   
Pfizer   
Procter & Gamble
Travelers
UnitedHealth Group   
United Technologies   
Verizon   
Visa   
Wal-Mart   
Walt Disney   

[WiregrassTiger]

If x stock were publicly traded, I assume that it would crack the Dow, correct?

[dallaswareagle]

If x stock were publicly traded, I assume that it would crack the Dow, correct?

It would start off serious with a lot of trading and then it would slide into negative numbers as the stock would just wonder off in different directions. 

[Snaggletiger]

It would start off serious with a lot of trading and then it would slide into negative numbers as the stock would just wonder off in different directions.

I believe Wolf of Wall Street quotes would be an appropriate hijack here.

[CCTAU]

The stock market is doing great due to Obummer being the best president ever. Here it is in their own words:

http://m.huffpost.com/us/entry/4280675


I hate the place but it's the best place to document the delusion!

[Godfather]

I believe Wolf of Wall Street quotes would be an appropriate hijack here.

Fuck you

[dallaswareagle]

I believe Wolf of Wall Street quotes would be an appropriate hijack here.

Have not seen the movie but have heard about some drugs being sniffed out of some body parts.

[bottomfeeder]

The stock market is rigged. Stick with derivatives, options, futures and forex

[Tiger Wench]

There is also market instability because Putin's national budget for next year was based on oil trading at no less than $105 a barrel.  He is now going to run out of money.  People over there shoot people for less.

America is getting the blame from OPEC and Russia because of the massive increases in production from the shale plays here.  Part of the reason for the drastic drop is an attempt by OPEC and Russia to run the small operators out of business and cut the competition for oil sales.  The smaller operators can't stay afloat with oil so low.  They get wiped out, and there are fewer companies selling oil.  OPEC and Russia are hoping they can hang on and not get dragged under while the little guys sink. 

The prediction I heard today is that this is going to be a "V" shaped crash.  Rock bottom, then straight back up, stopping at about $80 a barrel by the end of Q1. 

[Godfather]

There is also market instability because Putin's national budget for next year was based on oil trading at no less than $105 a barrel.  He is now going to run out of money.  People over there shoot people for less.

America is getting the blame from OPEC and Russia because of the massive increases in production from the shale plays here.  Part of the reason for the drastic drop is an attempt by OPEC and Russia to run the small operators out of business and cut the competition for oil sales.  The smaller operators can't stay afloat with oil so low.  They get wiped out, and there are fewer companies selling oil.  OPEC and Russia are hoping they can hang on and not get dragged under while the little guys sink. 

The prediction I heard today is that this is going to be a "V" shaped crash.  Rock bottom, then straight back up, stopping at about $80 a barrel by the end of Q1.

Pffft, like you know anything about oil.  Get back in the kitchen.

[Tiger Wench]

Pffft, like you know anything about oil.  Get back in the kitchen.

I know oil.  What do you think I fry the chicken in, dumbass?

[Tiger Wench]

I realize this is BuzzFeed, but for you less astute X-er's, it actually does a pretty good job of summing up the issues with lots of pictures and small words.

Lemme 'splain. No time. Lemme sum up

[Ogre]

There is also market instability because Putin's national budget for next year was based on oil trading at no less than $105 a barrel.  He is now going to run out of money.  People over there shoot people for less.

America is getting the blame from OPEC and Russia because of the massive increases in production from the shale plays here.  Part of the reason for the drastic drop is an attempt by OPEC and Russia to run the small operators out of business and cut the competition for oil sales.  The smaller operators can't stay afloat with oil so low.  They get wiped out, and there are fewer companies selling oil.  OPEC and Russia are hoping they can hang on and not get dragged under while the little guys sink. 

The prediction I heard today is that this is going to be a "V" shaped crash.  Rock bottom, then straight back up, stopping at about $80 a barrel by the end of Q1.

Interestingly enough, Mother Russia raised the key interest rate from 10.5% to 17% yesterday. 

[GH2001]

There is also market instability because Putin's national budget for next year was based on oil trading at no less than $105 a barrel.  He is now going to run out of money.  People over there shoot people for less.

America is getting the blame from OPEC and Russia because of the massive increases in production from the shale plays here.  Part of the reason for the drastic drop is an attempt by OPEC and Russia to run the small operators out of business and cut the competition for oil sales.  The smaller operators can't stay afloat with oil so low.  They get wiped out, and there are fewer companies selling oil.  OPEC and Russia are hoping they can hang on and not get dragged under while the little guys sink. 

The prediction I heard today is that this is going to be a "V" shaped crash.  Rock bottom, then straight back up, stopping at about $80 a barrel by the end of Q1.

I know right.

God forbid we increase shale supply and that supply outweight demand. Can't have anything that sticks it to Opec and is good for consumers across the board.

[Tiger Wench]

Another article that lays out the interwoven geopolitical issues that are all tied to the price of oil...

United Kingdom - The oil market faces an uncertain outlook in 2015 as tumbling prices resulting from global oversupply stoke geopolitical tensions in key producers of crude, analysts say.

Oil prices have lost around half their value since June, punished by abundant supplies, a stronger dollar and weak demand in the faltering world economy.

Losses accelerated in late November when the Organization of Petroleum Exporting Countries (OPEC) -- which pumps out one-third of the world's oil -- decided against cutting its output despite the supply glut.

Prices subsequently hit a series of five-year lows in London and New York, rocked also by 2015 oil demand forecast downgrades from both OPEC and the International Energy Agency watchdog.

At the OPEC meeting on November 27, kingpin Saudi Arabia and other Gulf monarchies opposed a cut to the cartel's daily output ceiling of 30 million barrels.

Analysts say they want lower prices, even if it slashes incomes, to counter the rise of US shale oil -- which is more expensive to produce and eats into OPEC's market share.

However at the other end of the scale, oil producers Venezuela, Nigeria, Iran, Iraq and Russia are desperate for prices to rise so they can balance their books and salvage their teetering economies.


- Social, political turmoil -
 

In Venezuela, plunging crude oil prices have already sparked social unrest and political uncertainty.

Following the OPEC meeting, Venezuelan President Nicolas Maduro ordered his government to slash the budget of his oil-dependent and economically weak nation.

In Russia, the tumbling oil market -- combined with Western sanctions linked to the Ukraine crisis -- has sparked a collapse in the ruble.

The plunge in crude prices since June has hit Russia particularly hard, as half of the country's revenues stem from energy exports.

Russia's central bank hiked its interest rate for the second time in a week on Monday in an attempt to halt the ruble's plunge, which has sparked huge rises for consumer goods.

Norway, on the other hand, unexpectedly cut interest rates on Thursday in an effort to counteract the impact of plunging oil prices and stimulate the Nordic nation's oil-dependent economy.

In the Middle East, Iraq -- which is battling Islamic State (IS) militants -- will take a major hit from the plunging cost of crude, according to expert Richard Mallinson at consultancy Energy Aspects.

"For now the Iraqi prime minister (Haider al-Abadi) is managing to hold together his political coalition and has halted IS advances with various international support," Mallinson said.

"Iraqi politicians will find it difficult to cut spending in the current context and so the country is potentially facing a serious economic crisis in the next year or two."

Added to the picture, Iran -- the second biggest oil producer in the 12-nation OPEC cartel after kingpin Saudi Arabia -- is gaining increasing power within Iraq.

"Iran is getting even more influential in Iraq, and those two countries together could start to challenge the level of Saudi crude oil exports in coming years," said Petromatrix analyst Olivier Jakob.

At the same time however, US lawmakers could decide next year to impose fresh sanctions on Iran over its disputed nuclear energy programme, which could continue to weigh on the nation's own oil exports.


- Rebalancing? -
 

Some analysts, however, predict that low oil prices could stimulate demand and global economic growth, which would help soak up excess supplies.

In turn, that would help to lift prices in the long run.

"One cure for low oil prices is low oil prices," summarised analysts at Swiss bank UBS.

A 25 percent drop in world oil prices in the short term would help boost global demand for crude by 0.50 percent, or 460,000 barrels per day, according to IMF data cited by British bank Barclays.

However, it could take quite some time for the benefits of low oil prices to boost world economic growth.

"It could potentially take from a few months to perhaps a year for the lower oil prices to feed through the global economy," noted analyst Fawad Razaqzada at trading site Forex.com.

In the meantime, low prices would curb output from high-cost US shale energy producers, according to Germany's Commerzbank. Falling oil prices "will be a tough test for the profitability of many (US) producers and is likely to spark a supply reaction in the medium term," said Commerzbank analyst Carsten Fritsch.

OPEC faces tough new competition from cheaper oil from US shale fields -- but this involves a costly extraction process that needs high oil prices to make it worthwhile.

Oil output is booming in the United States thanks to fracking, which involves blasting a high-pressure blend of water, sand and chemicals deep underground in order to release hydrocarbons trapped between layers of shale rock

.

[WiregrassTiger]

Consumer sentiment best numbers since 2007. Dow tops 18,000. Economy has grown at fastest rate in 10 yrs.

N Koreas Internet getting hit yesterday by some unknown hack, apparently in retaliation for their hack against Sony, maybe helped momentum.