From Teeka Tiwari, Chief Analyst, Mega Trends Investing: The last time we saw oil drop this big and this fast was 2008. Oil has now dropped 58% to around $45 per barrel. Just like last month, oil-related fears continue to plague the market.
Investors are starting to panic. They can’t understand how the price of crude oil can crash without it meaning that the economy as a whole will crash. They insist that the softness in oil is foretelling a global economic slowdown.
Now, there have been times when a sharp drop in oil has foretold a slowdown. But there also have been times when we’ve seen a similar drop… and the U.S. economy has boomed.
Take a look at the chart below to see what happened to oil back in the late 1990s. From October 1996 to October 1998, oil dropped 61%. Yet during that same period, U.S. GDP grew by an average of 4.26%.
Where was the recession? It never happened. During that same period, the S&P 500 gunned 74% higher.
We cannot rely on oil prices as the gold-standard measurement of U.S. economic health.
What we have to focus on is U.S. GDP growth, state coincident indexes (economic indicators from the Philadelphia Fed), employment rates, wage growth, and corporate earnings growth.
GDP for the third quarter of 2014 was revised higher to 5%. That’s the highest it’s been in five years.
The state coincident indexes continue to support economic growth.
Unemployment is down to 5.6% from 8% just two years ago. Three million jobs were added in 2014, the most in 15 years. New job openings are at a 15-year high.
Wage growth is still slow, but with the boom in new job openings, I’m confident that wages will rise.
These are the economic indicators that we rely on at Mega Trends Investing. They suggest that the economic recovery is intact and will continue. That’s good for business and very bullish for stock prices.
As investors, this means we need to view market volatility as a buying opportunity. Our job is to stay the course and profit from this resumption of U.S. growth.
Bottom line: Forget the headlines and the jumping market prices and focus on the big picture. The American economy is healing. The American consumer is healing. The economic way of life that we thought was lost to us forever is slowly returning.