Since the new year, the stock market has lost over a trillion dollars (that’s 1,000,000,000,000+). By the time of this writing, we’re only 21 days in.
In 2016, two major stock market indexes, the Dow Jones and S&P 500, have thus far dropped 1,658 points, and 9%, respectively. Yeah, but so what? What does that even mean?
One of the major causes of this recent market volatility is the sharp drop in oil prices. If you’ve been to the gas station lately, you’ll probably have noticed that gas is much cheaper than it has been in recent memory. Under $2 is a drastic difference from a couple of years ago, and $1.65 essentially seems free. While this is good for the consumer, and something our President touts as a success, (when is the last time he bought gas, anyway?) this could turn out to be the undoing of the world economy. That’s cheery, but hopefully just a bit of colorful hyperbole.
Simply, this is an issue of supply and demand. The world is just pumping out tons of oil. According to the International Energy Agency, the world produces 35 billion barrels a year. There are about 42 gallons in a barrel. When there is this much gas available in the marketplace, oil companies have to cut their prices in order to sell it. And when there are several competing companies, all trying to sell their oil, prices drop. Right now, by-the-barrel oil prices are lower than they have been since 2003. This has affected the stock market even more, as Iran, with newly-lifted restrictions (thanks, Obama) is expected to glut the already oversaturated marketplace with even more oil. At the precise worst time imaginable. People are dumping oil stocks, for fear of an impending crash, and are also tossing companies that are even associated with oil, which is in turn hurting nearly all companies.
What all this means, in a nutshell, is that people are going to lose money. While Wall Street may seem far away, anyone can invest, which means anyone can get hurt. Retirement plans, college funds, and the likes may be in jeopardy due to the dip in the market. For now, consumers are happy as gas is cheap and prices will drop. The hope of economists and politicians everywhere is that this doesn’t turn into a crash, where prices get so low they are no longer sustainable, companies go out of business because they can no longer produce, and prices balloon.
People are holding their breath as they wait and see what the market has in store for the rest of the year, hoping this doesn’t turn into a 2008 or Great Depression type of situation. For now, it would probably be in our best interest to just relax – but stock up on gas.