The stock market can go up or down for any reason it wants too, including illogical ones. To experience a sell-off over low oil prices, however, seems counter-intuitive. Sudden increases oil prices have always thrown our economy into recession. One of the gloomier decades in American history, the 1970s, was characterized by two “oil shocks”, the first as a result of the Yom Kippur War in 1973 and the second due to the Iranian Revolution in 1978-79. Unemployment soared, gas rationing was introduced, the most ineffectual president in American history, Jimmy Carter, carried his own suitcase into the White House, and bad disco music poisoned our popular culture.
If high oil prices are bad, then how can low oil prices also have a negative impact? Investors seem to be simultaneously asking themselves the same question, and all realizing at the same time there is no satisfying answer . And since Russia is a major oil exporter, pressure on their economy might impel seemingly irrational dictator Vladimir Putin towards a semblance of rationality. Halting saber-rattling in Crimea would be a nice Christmas present for Europe.
Oh, and then there’s the continued drumbeat of good economic news, and reassuring burbles from the Federal Reserve that the crack cocaine of low interest will continue to flow directly into our veins. Finally, US businesses and tourists will at long last have access to a new market Cuba, which while small – population eleven million – is also starved for consumer goods, modern infrastructure and tourism. Not only are we their closest neighbor geographically,but our nation’s significant Hispanic population makes us a natural trading partner. Trade with Cuba is not a game changer of the order of Nixon opening ties to China, but at the margin it’s a nice bit of positive economic news, equivalent to a late field goal when you already have a two touchdown lead.
Throw all those ingredients into the blender, and you get the sharpest two day stock market rally in three years yesterday and today. If you’re looking for me, I’ll be busy celebrating at the gas pump. Arriba!