The S&P 500 is now almost perfectly correlated to the price of oil, which is interesting because over the past decade they’ve had virtually no correlation.
Energy only makes up 3% of the economy.
So why the focus?
- Falling prices often signal softness in demand, which precedes an economic slowdown. But, most believe this is a supply glut, not weakened demand
- Cheap oil is causing US Oil production to cool off, hurting energy companies and states heavily dependent on oil
- The threat of Oil Loans imploding (raises the risk in the banking sector
- Russia, Venezuela, Brazil, and others that rely on oil exports could lead to an emerging debt crisis
- Fresh doubt about whether the Federal Reserve will be able to raise interest debt
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