This year started with a strong consensus view, that stocks would perform well and the economy would continue to truck along...oh how things have changed. Stocks are down almost 5% for the year and the economy is slowing a bit (which is surprising considering how almost everyone has thought that the incredible decline in the price of oil/gas would serve almost like a massive tax cut for consumers, boosting the economy and stimulating corporate profits).
Oil vey! Were they wrong!
Consider:
- A year ago, consensus 2015 was that stocks would rise by double digits.....they are negative about 5%
- Retail spending has disappointed throughout 2015. Indeed, the retail sector has been a market landmine this year. Just look at what's happened to the earnings of Ralph Lauren (RL), Macy's (M), Bed Bath & Beyond (BBBY), Wal-Mart (WMT), and now Costco (COST).
- The BRICs (Brazil, Russia, India and China) are suffering from lower commodities prices, including oil. And they've have "exported" the resulting deflation, slowing economic growth and reduced profits.
- In a flat, networked and interconnected globe, what happens overseas affects our economy and stock markets. We're not an island of prosperity -- lower energy prices have caused a slowdown in world trade, and global economic growth has suffered.
- The transportation industry and U.S. port activity have both floundered as energy-related activity waned.
- Lower prices for energy and other commodities have caused global political turmoil, and have contributed to Mideast instability and rising geopolitical risks.
- The U.S. energy sector is suffering much worse than expected, as measured by unemployment, activity and profits.
- There has been much more collateral damage from lower oil than many predicted. Most importantly, the high-yield-bond market has fallen its lowest price since the 2011 European financial crisis under the weight of lower energy credits.
- Lower oil prices have wrecked havoc and caused many billions of dollars in losses to energy-related investments like Master-Limited-Partnerships and stocks of exploration-and-production companies.
- Large oil/gas companies and Utility companies have always been a great place to invest in for dividend income (for older individuals) but this is no longer the case as the stocks have gotten crushed and several large companies have slashed or suspended their dividends. This morning even the large commodities company Freeport Macmoran (FCX) suspended its dividend!
My point in all of this is that the low price of oil/gas has not served to help the individual consumer/investor and b/c this has not happened (and retail spending has been subpar) gives me more reason for concern for stocks and the economy in general.