Sinking Stocks from Oil Meltdown

Source: CNN

Article link: http://money.cnn.com/2015/08/19/investing/stocks-oil-markets-dow/index.html?iid=SF_LN

Author: Matt Egan

Date: 08-19-15

The issue discussed in this article is precipitating oil prices and how this contributes to plummeting energy-affiliated stock prices. Economic downturn can be indicated by oil prices that are below $40 per barrel, and the United States continues to inch closer and closer to that number. The article argues that while falling oil prices are beneficial to consumers, they shape panic amongst investors. Which shows that if Federal Reserve legislators implement higher rates, the economy may have the stage set for a correction.

The supporting evidence in this article includes the many statistics that reveal a detrimental drop in prices. The Dow Jones Industrial Average concluded on August 19, 2015, tumbling down about 160 points. Both The Standard & Poor 500 and The Nasdaq ended that same day with an almost 1% decrease. While the quantitative data may not seem drastic now, in the future, it will accumulate into something unable to be overcome. The article explicitly points out ways in which the issue of oil prices will affect the economy: imbalance of supply-and-demand, inflation impeding rate increases, and the perpetual issue of unemployment.

Supply-and-demand and inflation heavily contribute to an increasingly diminishing economy. Global demand remains lethargic, while oversupply becomes more problematic. A possible interest rate hike could be the basis for an economic turn-around; however, low inflation is making Federal policymakers wary of doing so. The United States is coming close to the point of improvement, in which rates could be raised due to slowly increasing inflation, but Federal officials don’t want to make any untimely moves. That would only quicken the economic downward trend.

Tumbling oil prices are will also only worsen the immensely apparent issue of unemployment. Inexpensive oil prices for consumers means less profit for producers, which would also contribute to an economic slowdown. This could result in future layoffs or less employment opportunities, increasing unemployment.

The issue of oil prices and the stock market reaches far beyond national borders but still largely affects Federal policymakers’ lack of desire to raise rates. For instance, China’s currency had a drastic drop recently. Many Latin American countries have also been struck with plunging oil prices. This could cause higher demand and interest on loans but an inability to obtain them and other monetary resources, which would have major repercussions. If the Federal Reserve were to raise rates, those investing in newly formed markets would be likely shift their funds to the more appealing American dollar. Other countries that have gathered immense international currency stock could be able to run deficits for quite some time. However, economic chaos in European and Latin American Countries and China is creating a very instable future.

In conclusion, oil prices are constantly fluctuating, and while American consumers love the sight of decreasing gas prices, I believe it will negatively impact the United States in the future. I think it will guarantee sky-rocketing unemployment rates and an unmaintainable supply and demand issue. If we don’t put some thought into how global demand can pick up and balance out oversupply, then the issue will become too much to handle. Soon oil will become less than $40 a barrel, and the economy will spiral out of control. A shift in one market will directly impact another market, despite distances apart. I think the risk is worth it because we need a solution to the economic turmoil very quickly. Oil could continue to rapidly lose its value, and rate increases could restore the stock market to its former health.