Oil Headwinds Become Tailwinds

by Kurt Kallaus
Financial Sense

Oil prices rising from $26 to $46 a barrel this year have helped boost US stocks a whopping 22% from their lows. The digital age led by Amazon and overcapacity of retail space per capita may be killing retail bricks and mortar, but the dirty old energy-driven industrial economy still holds some sway over the economy and the stock market.

While many factors move stocks, the headwinds or tailwinds from oil are well correlated. Corporate earnings have been in a tailspin since early 2015 as enormous losses in the energy and raw material sectors weighed on GDP and profits. Stocks don’t need ever higher oil prices, which would eventually be negative, but they need stability and relief from the continual downside shocks that climaxed in January-February 2016.

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