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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: TobagoJack who wrote (60610)2/26/2005 1:27:27 PM
From: Maurice Winn  Read Replies (4) of 74559
 
Jay, the reports used to flummox me; "oil rises in price and the stock market zooms with it". That seems nuts. I decided it works like this; oil goes up in price because there are rising bids for not enough to go around to replenish stocks, which makes the investment strategist models for the oil companies and other energy suppliers go up because the oil companies bring in more profits with higher prices. That makes the market rise as the bandwagon effect kicks in as rising markets cause rising markets [and falling markets cause falling markets]. As oil shares rise, the profits and increased market capitalisation mean the owners can buy other shares, thereby pushing up their prices too.

But as you suggest, when input costs, such as oil, go up, we are poorer and we can't buy so much stuff. Oil buying shares should go down. <"Asian Stocks Rise for Fifth Week on Crude Surge ..." > Asian stocks are oil buying stocks, with higher input costs.

But a couple of decades ago I noticed that weird reverse oil effect. Maybe it's because people think that a lot more money will be spent and the oil industry and oil producers will recycle that money which will cause a stock market profit boost and therefore a share price boost. Which still leaves the problem that the buyers don't have more money to pay higher prices - they only have what they have.

Beats me. That's how I explain it.

Mqurice
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