Tuesday, March 27, 2007

High oil prices and the stockmarket

Someone asked me.

The oil price has increased above US$60 again. This should be bad for the global economy. Why is the stockmarket still going up?

My reply:

It is a matter of timing. Investors expect the high oil price to increase the profits of the oil companies and the oil service sector. They bought these shares, resulting in a higher market index.

The high oil price will result in lower consumer spending. The effect will be felt in a few months' time. When this occurs, then the stockmarket will come down.

This is only my guess. Generally, I do not like the high stockmarket prices. I think that it will correct downwards, but it may take a few more months.

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