Low oil prices have gone from hurting to helping the financial markets. In 2015 and early 2016, collapsing oil prices weighed on stocks as investors feared energy sector bankruptcies, reduced corporate spending, and lower earnings. Now, stocks are cheering low oil prices as energy savings accumulate for American consumers.
The following charts reveal that despite a nearly 20% drop in oil prices since early June, stocks have reached new highs and high yield corporate bond yields have remained low (low yields suggest less stress on corporate finances). These dynamics suggest that falling oil prices finally have switched from being a headwind to a tailwind for investors.
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