Sunday, January 25, 2015

While the energy sector itself is certainly suffering from falling oil prices, analysts point out that energy makes up only 8 percent of the overall S&P 500.

Investors worried about falling oil prices dragging down the stock market and bringing the bull market to a screeching halt should remember this Fidelity note: The S&P 500 has historically had zero correlation with oil prices.

There are many benefits to the American economy from low oil prices.

Fidelity analysts, in particular, believe recent fears over the fall in crude are likely to do more to the velocity of the drop, rather than the magnitude of it.

Moreover, Cheap oil means lower production costs for many American (and indian) industries. For most American (and indian) companies, energy is an expense that eats into earnings. Historically, low oil prices coupled with strong labor markets have produced an environment of strong economic growth in the U.S.

Low oil (gasoline) prices, they say, are akin to a sizable tax cut for American (and Indian) consumers. More disposable income means more spending in other sectors of the economy.

Source: Adopted from Benzinga
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