Market Beat: There are pros, cons to lower oil prices
Special to the Sun
At the recent FOMC meeting, Janet Yellen stated that the Fed does not expect to start raising interest rates for at least the next couple of meetings.
The Fed has its next meetings scheduled in January and March of 2015. One of the main factors she cited in not raising rates was inflation. The Fed would like to see inflation running at about 2 percent.
The CPI, Consumer Price Index, was released on December 17, the same day as the Fed meeting, and the CPI declined by -0.3 percent. The core CPI which excludes the volatile food and energy groups rose by 0.1 percent.
One reason for the low inflation numbers has been the drop in the price of crude oil, which has lowered the price of gasoline.
According to the AAA, the national average price for gasoline per gallon is $2.50 which is a drop of $0.75 cents over the last year.
Falling gas prices affect consumers just like a tax cut or a pay raise. It gives people more money to spend elsewhere.
According to David Rosenberg at Gluskin-Sheff, every penny saved at the pump is worth about $1.5 billon to US consumers over the course of a year.
There are pros and cons to lower oil prices. Developed oil importing countries should benefit, but at the expense of oil exporting countries like, Venezuela, Russia and Canada.
Domestic energy companies will feel some fallout, too, and there is the possibility of bankruptcies in small oil and gas exploration companies.
If you have exposure to stocks or high yield bonds from the energy sector in your portfolio, now might be a good time for a review to see if they are still suitable for you.
The low price of oil could also be bad news for some alternative energy companies.
The oil and gas industry only accounts for about 2.0 percent of Gross Output in the US and lower energy prices benefit most other sectors.
Overall, cheap gas is good for our economy, especially the consumers who will have more money to spend around the holidays this year.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.