Cheap Gas or a Higher Dow?

By Ian

Here's a side-effect of climbing crude prices I haven't seen much talk of in the press:

U.S. stock futures pointed to a higher open on Thursday as investors express optimism that earnings from bellwethers such as Exxon Mobil Corp. (NYSE:XOM - news) will rally blue chip stocks for a third day.

Of course, the continued growth of oil prices will have the opposite effect eventually.

I just like seeing the idea of trade-offs in action.

-- July 29, 2004 8:51 AM |

Comments

Barry Ritholtz wrote:

XOM is but one of 30 Dow companies; Its gains are more than offset by the decreases in prices of the other stocks whose earnings decrease due to higher costs (fuel, shipping, etc.). Consumers that spend more on fule have less cahst o spend on everything else.

Higher oil prices are an overall drag on the economy -- not a benefit to the Dow.

-- July 29, 2004 11:36 PM ∞

Ian wrote:

Well, clearly. I do see the overarching issue. The funny part to me was the direct link the article made between the two.

Since I personally don't think the stock market is anything more than a big popularity contest for palm readers (though, an important one to be sure), I tend to see the whole thing as an issue of incentives. Increases in profits now convince people of profits in the future. A prospering oil company means all of its subsidiaries might do well (goes the possible thought process) as might companies that rely on the health of oil companies. Things "look better", until someone realizes that higher oil costs means more expensive shipping. Then everything that has to be sent somewhere gets more expensive. Suddenly, a rush of panic. It's all very ephemeral. But the article linked to seemed to make a point that had slipped my mind during discussion of the "record high" oil prices: during times of trouble, some companies do really well.

-- August 2, 2004 9:07 AM ∞

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