¶ … oil prices and the stock market. The relationship between oil prices and increases in costs to transportation, heating and production are reviewed, and the role of spiking oil prices on market uncertainty is discussed. Overall, higher oil prices are historically linked to declining stock market prices, and it seems reasonable to suggest that future stock market decreases will come from current increases in oil prices.
Stock market performance is strongly linked to oil prices. Recently, oil has hit new price records, and the stock market has declined in response. This trend follows the historical relationship between oil and stocks, which has seen sharply rising oil prices as a strong predictor of stock market declines. Such stock market declines can be linked with increased costs due to high oil prices, as well as general market uncertainty.
Oil Prices and the Stock Market
Recently, oil prices have hit historic highs, and stock markets have moved downward in response. As of September 27th, 2004, oil futures hovered at a new high of $49.64 a barrel on the New York Mercantile Exchange. At the same time, stock averages declined in response. The Dow closed at 9,988.54, and the NASDAQ closed at 1,859.88, both showing a decline from previous levels (E-Commerce Times).
Historically high oil prices have been linked to drops in the stock market. Leeb and Leeb (2004) write, "For the past thirty years, the price of oil has been the single most important determinant...
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