Money & Investing - Banks.com

The news this week has been a return, after a brief respite, to surging oil prices. These oil prices are causing serious damage to the stock market, as Bloomberg reports:

“This week the news on earnings is that the second quarter is probably going to be worse than we thought,” said Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio. “The old news keeps sticking around: it’s energy prices, it’s writeoffs at banks, it’s the slow economy.”

Indeed, oil prices cut into the earnings of many companies. As energy costs rise, so do the costs that companies pay to get such things as electricity, fuel for company vehicles, heating (although this isn’t as big a concern in the summer) and other costs. Higher oil prices mean that company profits are shrinking.

Oil prices have another indirect effect on the stock market. Psychologically, rising oil prices make investors nervous. They beginning selling and soon stocks are dropping rather rapidly — especially stocks that rely heavily on energy prices, like airlines and trucking companies.

Oil prices and other investments

Other investments are also affected by the rising oil prices. The US dollar weakens as oil prices rise. This gives other currencies, like the euro, the advantage in currency trading.

Commodities are also affected by oil prices. Obviously, the surging oil prices invite increased speculation, since everyone wants a piece of the pie. But other commodities are tied to oil prices. Gold prices often (but not always) move in tandem with oil prices. Many investors buy gold as a safe haven to protect against a weakening dollar and inflation.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock market news, investing blog, oil prices,
economy, investments, US dollar