Gil’s Musings

Falling Oil Could Lead to Rising Stocks

You probably had other things than oil prices on your mind New Year’s Eve, so you may have missedmy comments in the Houston Chronicle about the impact of lower crude prices on Houston-area companies.

The paper tracks an index of large local employers, which, not surprisingly, have been hard hit by the downturn in oil. The price of West Texas Intermediate crude, the U.S. benchmark, has fallen more than 50 percent since June.

On Monday, it dipped below $50 a barrel for the first time since April 2009. The decline has been remarkably swift, and it pushed the typical oil stock down by 20 percent in 2014. Some have fallen much more than that.

But as I pointed out last month, oil’s decline is good for the overall economy. In fact, it works in much the same way as a tax cut, reducing the amount people pay for fuel and freeing up discretionary income for them to spend on other goods and services. That, in turn, bodes well for non-energy stocks and could result in even higher overall market returns this year.

[Photo: Trevor MacInnis via Wikimedia Commons]

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