Could the current slump in crude oil prices to historic lows mean the U.S. stock market’s recovery since late March is fragile ?
That’s a question some are asking as the disconnect between downbeat commodity values and high-flying equities in the past month puzzles investors trying to figure out which market will ultimately prove right on the U.S. economy. If energy markets are correct, equities could succumb to gravity and give up the gains seen since March 23.
The implosion of crude oil markets in the past week holds a mirror to the broader distress in the U.S. and global economy.
Social distancing measures imposed on consumers and business shutdowns enforced to combat the spread of the coronavirus pandemic have led to a collapse in international trade and travel. Gasoline and jet fuel prices have sunk as a result leading to crude oil inventories rapidly filling the available storage space.
The lockdowns have also led to a slump in business revenues and consumer spending, causing mass unemployment in the U.S. not seen since the 1930s, at least temporarily. The issue for business earnings, economic growth and stock market values is that the U.S. is more dependent on consumer spending than some other economies.