Tags: oil | stocks | market | recession

Oil and Stock Market Prices Point to Recession in 2015

By    |   Wednesday, 26 August 2015 12:33 PM

Economists devote a great deal of effort to creating models that forecast economic growth. Market analysts often take a simplified approach and use the price of oil and stocks as reliable indicators.

Oil is the fuel of the economy and has been for more than 100 years. China’s rapid economic growth over the past 25 years coincides with a 350 percent increase in demand for oil. China’s slowdown will now result in decreased demand for oil.

This relationship is obvious but what’s often overlooked is the relationship between market prices and future expectations. In the stock market, investors buy companies based on expected future growth. An investment in a company isn’t a reward for past accomplishments as much as it’s a vote of confidence in the future. The same true of commodity prices.

The collapse in oil and other commodity prices over the past year indicate a recession is likely before the end of the year. Lower prices indicate demand is expected to decrease. This decreased demand will result partly from slower growth in China but also from slower growth in other countries around the world.

Recent economic data indicates the slowdown in the U.S. is likely to occur soon. Recent gains in GDP have been driven by a buildup in inventory rather than by increased consumer sales. This trend is likely to be reversed in the second half if retailers seek to reduce inventory levels.

Now, stock prices are trending lower and confirming the drops in commodities. For now, market prices in oil and stocks point to a slowdown. When unemployment starts to rise, economists will concur with traders that bad news lies ahead.

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MichaelCarr
Economists devote a great deal of effort to creating models that forecast economic growth.Market analysts often take a simplified approach and use the price of oil and stocks as reliable indicators.
oil, stocks, market, recession
275
2015-33-26
Wednesday, 26 August 2015 12:33 PM
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