The conventional wisdom is that high oil prices are bad for the economy and stock market. There's more nuance to it than that.
The conventional wisdom is that high oil prices are bad for the economy and stock market. They hurt consumers’ ability to spend.WTI crude oil has gained about 17% to $91 a barrel from a low point in mid-August. Recently, a lower rate of broader inflation has made the Federal Reserve more likely to be at the end of its interest-rate hikes, something that can support economic demand. Demand has already held up fairly well of late, with retail sales in August up 2.
Sometimes, such high oil prices dent the stock market. It might even seem as if that’s the case right now, with the S&P 500 down about 3% since the start of August. “Correlation in this ongoing equity-market correction is not, however, always causation,” writes Evercore strategist Julian Emanuel, explaining that higher oil prices aren’t necessarily a major problem for the stock market.
The reason is because higher oil prices often coincide with strengthening consumer demand and a robust economy, which powers corporate profits higher. In the 2010 to 2014 stretch, the economy was growing and consumer confidence rose from a reading of about 65 to around 80. So far this year, it’s risen from around 95 to just over 100.
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