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Investing Specialists

Falling Energy Prices Too Much of a Good Thing?

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It was terrible week for just about every investment category with the exception of U.S. Treasury bills and bonds. U.S. stocks were the "relative" winners, with the S&P down "just" 3.4% for the week. On the other end of the performance scale, emerging-markets equities were down a stunning 6.2% and Europe was down 5.2%. Even with a further drop in oil prices (oil prices are now under $60 a barrel) a benchmark commodity index was able to limit losses to 4.2%. The market turmoil seemed related to the fact that falling oil prices might be turning into too much of a good thing.

News out of China also suggested that the government was more interested in driving the Chinese economy more toward consumption and making long-term structural changes. Missing for now are discussions of short- and intermediate-term economic growth targets for China, which clearly spooked the market. The U.S. economic news this week could not have been much better, but no one really cared. News included improved retail sales, falling budget deficits, more small-business confidence, and continued growth in job openings.

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Robert Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.