Will $100 Oil End A Bull Market -- Again?

A number of major global markets, including China, Hong Kong, India, and Brazil topped out in November and have been in varying degrees of corrections since, down 12% to 17%.

Their concerns have been rising inflation.

However, markets in Europe and the U.S. have had no such concerns and have not only been holding up well, but continuing to make new highs. That is until the last few days, when the turmoil in Egypt spread to oil-producing countries and caused a sharp spike-up in oil prices.

That is something that does have the attention of European and U.S. markets – at least short-term.
Obviously, rising oil and gasoline prices (added to rising food costs), affect the ability of consumers to spend on other items, and raise concerns about the economic recovery.

But why might the specific level of $100 oil be of concern, when the near tripling of oil prices since 2009 has not been?

We’ve worked up the following chart to show you how the 2003-2007 bull market ended and rolled over into the 2007-2009 bear market when oil reached $96 a barrel in October, 2007. At the time the economy was still strong, and it was not known that a recession and global financial crisis would strike in 2008.

But it was known that oil had spiked to $96 a barrel.


Photo: Sy Harding, StreetSmartPost

The stock market rolled over (the vertical blue line) into the bear market in October, 2007. The price of oil continued to rise until it reached $150 a barrel in mid-2008. It then plunged with the final legs down of the bear market in stocks as the recession took hold. Oil prices have since been tracking with the improving economy.

But here it is nearing $100 a barrel again. And here we are with the U.S. and European stock markets declining sharply for two or three days?

It hasn’t resulted in more than a short-term blip in the market so far this time.

But it does remind me of how the ‘Asian contagion’ of market corrections began in Asia in 1997, spread around the globe and finally washed ashore in Europe and the U.S., when the 1998 ‘mini-crash’ took the S&P 500 down 19% and the Nasdaq lost 30% of its value in six weeks.

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