Tags: Gasoline | Prices | Stock | Rally

Surging Gasoline Prices Threaten Stock Market Rally, Morgan Stanley Warns

Wednesday, 14 Mar 2012 08:04 AM

A new report from Morgan Stanley says soaring oil and gasoline prices could cost the U.S. stock market its resilience.

The report, written by chief U.S. equity strategist Adam Parker and several other analysts, says “the U.S. equity market typically goes down when there’s oil supply shock,” albeit “it usually takes several months for the negative effects to be realized.”

“Gas price increases are likely a headwind for the U.S. equity market and these increases typically impact the market negatively more than price declines help the market positively.”

Editor's Note: Wall Street Insider Exposes Death of Main Street America

Morgan Stanley analysts are urging caution in the energy, materials and industrials sectors given that oil prices have surged 16 percent in the last three months, mainly on supply concerns stemming from the renewed tensions with Iran.

“Our judgment is to be cautious of owning big overweights in these sectors,” says the report, in which Morgan Stanley analysts say they expect the recent rise in oil prices to continue to impact prices at the pump, which in turn will have a negative impact on stocks.

Unfortunately, the report says the reverse doesn’t apply: A $10 crude oil price increase would translate into a 45-cent rise in gasoline prices, while a $10 decrease in crude lowers expected gas prices by only 3 cents.

Worse, "a 10-cent gas price shock subtracts 1.2 percent from subsequent expected returns," according to the report.

ABC News reports that gas prices continue to tip upward, to an average price of $3.83 a gallon, according to the U.S. Energy Information Administration.

This week's average price for regular gas rose 26 cents from a year ago, making it the highest price ever recorded in March, beating last week's record of $3.79, using data going back to 1990.

Editor's Note: Wall Street Insider Exposes Death of Main Street America



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