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The sharp fall in crude oil prices typically is seen as a negative for equities, since it...

  • Friday, May 25, 2012, 5:10 PM ET
    The sharp fall in crude oil prices typically is seen as a negative for equities, since it reflects worries over weakening global economies, but the outperformance of the Dow Transports hints that falling crude eventually may be a boon for stocks. If crude’s sharp drop really reflected slowing demand, shouldn't transports be falling at least as fast as the broad market, as they did in late 2008 and mid-2011?
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    Oil and the broad economy have a reciprocal causal relationship, with negative feedback which serves to stabilize both. Economic activity will run the price of oil up or down, other things being equal, while a high/low oil price will damp/stimulate the economy.
    25 May 2012, 05:40 PM Reply Like
  •  
    Transports lag the response of crude prices...it takes a bit for the ripple to make it through the system (assuming a slowdown).
    26 May 2012, 08:17 AM Reply Like
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