Gas Prices At A Key Level

 |  Includes: UGA
by: Bespoke Investment Group

From late December through late February, the average price of gasoline in the US saw a sizable rally of 18%. Not coincidentally, beginning in early March we began to see a notable deterioration in the momentum of economic indicators relative to expectations. Since gas prices are such a large expense of the typical American's budget, higher prices at the pump inevitably crowd out spending elsewhere, which hurts economic activity.

Thankfully, in the seven weeks since gas prices peaked back at the end of February, they have now given up half of the gain they saw earlier in the year. As a result, we wouldn't be surprised to see this pullback have a positive impact on economic data in the coming weeks. That being said, current prices represent a key level going forward. After hitting a multi-week low of $3.51 per gallon last week, gas prices have now risen for three straight days. That $3.51 level represents an exact 50% retracement of the run up from $3.22 to $3.79. For the sake of drivers across the country this Summer, let's hope that the recent pullback off the highs was more than simply a test of the rally before a new leg higher.

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