Oil Spill Fuels Manic Monday – March 10, 2020
The S&P 500 Index2 lost 7.6% on Monday. It tops the 6.7% one-day selloff on Aug 8, 2011 and was the biggest one-day decline since 2008 (St. Louis Fed).
Reason: a steep decline in oil prices sparked by a sharp cut in prices by Saudi Arabia, OPEC’s leading oil producer. The Saudi’s will boost output, too.
Economic benefits—
- Falling prices aid consumers, increasing available cash to spend.
- Falling oil prices aid oil-importing nations.
- Falling gasoline prices support consumer confidence.
Economic drawbacks—
- Today, the U.S. is a net oil exporter. Falling prices hurt energy producers and force layoffs.
- There is an increased economic risk to producers such as Canada and Mexico.
- Cutbacks in energy equipment could ripple through manufacturing.
- The risk of defaults in high-yield energy junk bonds will rise.
- An expected hit to energy profits is likely to pressure S&P 500 profits, though the magnitude is unknown at this point.
Created 2020-03-10 20:37:42
