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Oil Shocks & Virus Spread Weigh on Markets

March 09, 2020

A global economy already worried about fallout from the new COVID-19 virus has been hit by a shock – an oil price war between Saudi Arabia and Russia. While the consumer will benefit from lower fuel costs, the near-term impact to the global economy may be worse as lower oil prices reduces the profitability of US oil companies. The fallout could include an increase in smaller oil drilling companies going bankrupt and job cuts in the oil and gas industry. Excluding indirect employees and businesses, the oil and natural gas industry supports 10.3 million US jobs and nearly 8% of the domestic economy.

I am continuing to collect & offer relevant data to share with clients & readers:

A Coronavirus Recession? - First Trust Monday Morning Outlook

  • The report begins by reporting around how strong the economic data was in January & February--Maybe a reason why most investment professionals are advising a measured approach

  • Putting all of this data into their model, the Atlanta Fed projects real GDP is growing at a 3.1% annual rate in the first quarter.  That’s not a typo.  However, March data, which isn’t available yet will likely bring this number down. The early economic headwinds from the Coronavirus are coming from slower production in China, which likely led to a big drop in inventories. 

Increase in Oil Production Makes for Manic Monday - Cetera Investment Management

  • Though Cetera Investment Management cannot predict the severity of the market downside in the near-term, they do see reasons for optimism once the dust settles. The Fed will likely bring interest rates to zero at its next meeting. The combination of zero interest rates and $30 oil prices is essentially a tax cut for the U.S. consumer.

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