Oil, The Fed, and a Whole Lot of Volatility

stock market cartoon

WEEK IN REVIEW

Tuesday: As key data reported fewer-than-expected oil stockpiles, oil prices soared and energy stocks followed. U.S. crude oil increased 2.9% to $32.35 a barrel, and the S&P 500 rose 0.4% to 1911 thanks to a 1.5% gain in energy stocks.

Wednesday: Stocks sharply declined after the Fed announced in its policy statement that a March interest-rate-hike is still on the table. The S&P 500 fell 20.68 points, or 1.1%, to 1882.95, and energy stocks gave up any gains from the previous day.

Thursday: Oil prices climbed again, and stocks rallied in response, as the S&P 500 recouped some of its previous losses with a 0.6% gain to 1893.36.

As we can see, stocks are on a roller-coaster ride as investors are showing their sensitivity to new information—any new information. I mean, it’s a shame the death of Pumpkin, my beloved goldfish, did not make headlines…investors would be up in arms over faulty fish food. Fish-enthusiasts, pet-enthusiasts, would say goodbye to their PetMed stock. I can see it now: “US Goldfish Rebel—Market Plunders.”

Okay, slight exaggeration, but you get the point. The market is extremely sensitive right now, and it seems that uncertainty is the driving force. Uncertainty about China’s slowing economy, uncertainty surrounding the course of oil prices, uncertainty about the Fed’s interest rate policy.

WHAT SHOULD YOU DO?

Investors love clarity and stability, but are lacking both right now. My advice to investors? Keep calm and hold on. Literally. To your investments. Do not simply bail when the market is down, or let your emotions steer your investment decisions. If you invest long-term, the daily volatility should not prompt panicked selling.

Keep up to date with your companies, monitor their earnings reports and announcements, and remember you are interested in the long-term growth potential of your companies. Hey, you might even be able to buy a few good stocks cheaply…or a new goldfish!

1 comment

  1. I agree with your advice to investors to hold on to their investments. Volatility is a typical characteristic in the stock market, so the market always responds to current information in the news by swinging accordingly, whether good or bad. The long-run earnings are much more consistent that daily, monthly, or even yearly swings.

    With such an interconnected global market, stock markets worldwide suffer from weakening production in major player countries. In the case with oil, the overproduction by producing countries has caused the supply to greatly increase demand, which is why the average barrel of oil costs the lowest it has it quite some time to around $30 a barrel.

    And article I thought you would like to read by the Washington Post (link below) explains how countries in OPEC and others major petroleum producers, namely Saudi Arabia, Russia, Qatar, and Venezuela, are freezing their oil output:
    https://www.washingtonpost.com/business/economy/saudi-arabia-russia-agree-to-freeze-oil-output–if-others-do-too/2016/02/16/647e29a8-d4ad-11e5-be55-2cc3c1e4b76b_story.html
    This new news had the price of oil jumping but then fell quickly back down. The low price of oil is clearly beneficial to big oil-consuming countries, such as the U.S., where the prices of fuel have reached the near lowest in over 10 years. For oil-exporting countries like Venezuela with already faltering economies, this trend in oil prices predicts hard times ahead.

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