The markets are coming to grips that the rising price of oil will crimp economic growth. It is estimated that every $20 rise in the barrel of oil above $80 cause a .8 – 1% decline in GDP, as more disposable income is spent on energy.
In the bigger picture, this is exactly what Ben Bernanke and the Fed have been hoping for: SOME inflation in the economy which will hopefully lead to an increase in workers’ wages and at some point higher employment. The downside is that the Fed’s policies will create inflation to the point of killing the entire economic recovery “bubble”. Yes, a stock market bubble is being built, which is good for tactical investors. However, when it bursts, you better be out!
Regards -Keith Springer