The Market Finally Figures Out that the Price of Oil is now a Real Problem

Yesterday was a tough day for the markets. The good news for stock market investors is that it wasn’t nearly as bad as it could have been. With today’s news, I would have expected a much bigger decline. However, it was still a big down day for the stock market with the Dow Jones Industrial Average losing 227 points and the S&P 500 losing 22 points.

It comes down to the price of oil. The price of oil per barrel was up by 4.56 yesterday. This brings the price of oil to $133.54 which is a record. Of course, this presents the biggest problem of all for the consumer. It simply translates into higher prices at the pump as well as higher costs for businesses.

If the stock market did not have enough bad news to contend with today, the Fed further complicated the situation by uttering the words the stock market did not want to hear.

The notes or minutes from the last Federal Reserve Board meeting were released. The minutes stated that the Federal Reserve Board is done lowering interest rates at least for now. The shift and concern is towards inflation. The Fed stated in their notes that they would only lower interest rates in the event that we have a big economic problem. Keep in mind, they only have 2% more that they can lower.

These are big problems for the stock market. First, the stock market has depended on the Federal Reserve Board to lower interest rates. So the thought of that stopping is not real positive for the stock market. Second, higher oil prices are bad news all the way around for businesses as well as consumers and the economy.

This creates amazing uncertainty for investors. We are in unprecedented territory. My concern is that this is only the start of the problems that these markets are going to face. As I have written in the past, as investors we can’t depend on the Federal Reserve Board to bail out the stock market. Yesterday provided an illustration that the Federal Reserve Board is losing control of the situation. I cannot stress enough to make sure that you understand the risk that you taking with your investments.

For some help with understanding risk, go to this link.

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