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Oil's Decline Is A Bullish Sign For Stocks

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Oil's Decline Is A Bullish Sign For Stocks

From a historical perspective, the direction of the price of oil sometimes correlates with the broader market; other times it does not.

This time around, oil's plunge to below $50 per barrel will be positive for stocks, at least according to Oppenheimer's technical analyst Ari Wald.

Speaking to CNBC's "Trading Nations," Wald explained that from a historical perspective investors should be worried about stocks only when the price of oil is high.

"We kind of think about it like this," Wald explained. "To get your economic bust you need to have your economic boom. And to use the price of oil for your proxy of economic growth — we aren't really close to that. We haven't seen that type of run-up in the economy and in oil prices."

He continued that if anything the recent downturn in oil pushes off the potential top in the market and removes a potential headwind. As such, equities, except those tied directly to oil prices, should continue to perform well so long as oil prices remain low and stable and also avoid a steep run-up.

How Low Can Oil Go?

Max Wolff, a strategist with Capital Partners, was also a guest on the CNBC segment and fielded the question just how low can oil go.

He noted that potential deregulation from the White House could result in a potential spike of supply coming online from U.S. energy companies. As such, the price of oil can continue heading low, especially given the prospect of an interest rate hike from the Federal Reserve, which will strengthen the U.S. dollar and cool down economic growth.

Related Links:

  • OPEC Oil May Be No Match For American Ingenuity
  • America's Oil Production Could Surpass Those Of 4 OPEC Producers In 2017
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