Most of us cringe when we hear “I’ve got some good news and I’ve got some bad news”, because more often than not, the bad news outweighs the good.
The global economy and financial markets are currently weighing the good news bad news stories on many fronts:
The Good News – Global Oil prices have dropped over 50% since last summer. This is certainly good for the consumer, the transportation industry, and all businesses that use petroleum.
The Bad News – Low oil prices aren’t good for Energy Companies, many of which are shutting down wells and laying-off workers in a mad rush to stay solvent. This could also be bad for the Banks that loaned money to drill the wells. Loan defaults may be right around the corner.
The Good News – Low oil prices are crushing the economies of Russia, Iran, Venezuela, and ISIS. This may slow their aggression.
The Bad News – These same bad actors may do something rash in defiance.
As you can see in the following charts, oil prices (lower chart) and the stock markets (upper chart) have been moving in relative unison for the past 15 years, until now! This has many investors a bit nervous to say the least. The optimists point to increased production driving prices down while the pessimists fear global demand is decelerating and this is an early sign of another global recession.
More Good News – The U.S. Dollar is strengthening. This drives the cost of imported products down for U.S. consumers.
The Bad News – A strengthening dollar means lower profits from exported goods. This is not good for U.S. Stocks of companies with significant global sales.
The Good News – The Federal Reserve is expected to begin raising short term interest rates later this year. This is good for savers in money market funds and CD’s but not so good for borrowers (i.e. Home & Auto Loans)
The Good News – The “Official” Unemployment Rate has been falling steadily.
The Bad News – The “Official” Unemployment Rate does not reflect the underemployed, part time employees wanting full time employment, or the number of people that have dropped out of the work force altogether.
While I have no idea how these good news bad news scenarios will play out I do know that the markets will react swiftly as these mysteries unfold.