Overnight, US markets were belted with the S&P 500 slipping 3.3%, its biggest fall since 8 February 2018. The Dow Jones Industrial Average also copped a beating, losing 3.1%, also its biggest fall since 8 February 2018. There is a sense of frustration this morning as there is little agreement as to what comes next.
Oil producers have come under pressure this morning with Beach Energy Limited [ASX:BPT] losing 5.48% as oil prices fell overnight. Beach Energy has fallen from $2.19 to $2.07 on the back of weaker oil prices sparked by record production.
Some people believe crude will march to higher prices. Others say it’s overpriced… It’s tough to know who’s right. But, objectively speaking, the sector remains broadly ‘hated’ by the market.
Oil market has become a crowded trade. Any correction in the oil price could see a swag of hedge funds selling to lock in profits. And that is what we saw this week as oil had its biggest price drop in more than two years.
Are we on the cusp of yet another rise in geo-political risk in the Middle East? It looks that way, and the implications for global markets could be massive. Where will you see it most from an investment perspective? Where you always do; in oil.
If stocks and oil prices do indeed have a strong correlation during ‘risk on’ times, then that is when they tend to move in sync. As markets are now clearly in a risk on mode, oil prices are likely to become more attractive to investors.
Why should you care? Because the price of oil has an effect on all aspects of the economy. From currencies to shares, to business profits. And if you’re an investor looking for big opportunities, this could be huge.
Markets make opinions, goes the old saying. Nowhere is that more true than in the oil market right now. More broadly, the rally in oil prices tells you the global economy is healthy. That should keep stocks moving higher in 2017.
Oil was the big winner overnight. Brent crude jumped a massive 3.8% to around US$59 a barrel. Yet all I’ve heard over the past two months are bearish stories about the global oil glut and the unlimited production ability of US shale oil. That’s why I’ve been bullish on oil for sometime.
Tech stocks are hot, and no one wants to get off the train right now. While I wouldn’t want to bet against tech stocks here, I wouldn’t want to own them either. There are better value opportunities around with more upside potential. Like energy stocks.