On Friday, the S&P 500 surged 2.5% and economist Fritz Meyer says it may be the start of a decoupling in oil and stock prices.
For years, a drop in oil prices was regarded as a boost to the economy and a positive for stock prices. That changed in recent months, says Meyer, and investors began to fear the plunge in the price of oil could pose a systemic risk to the economy.
“There is no systemic risk from the decline in crude prices to the U.S. and I’ll take it from Jamie Dimon, chairman of JP Morgan Chase,” says Meyer. "On an earnings conference call last week with analysts, he (Dimon) said energy lending portfolios of major banks have a de minimus amount of bad loans to energy companies. The whole concept of systemic risk is, “Uh-oh, just like in 2008, bank loan portfolios are filled with low- quality assets that could cause a banking meltdown, and that is not even remotely the situation today.”
“At some point, the S$&P 500 will decouple with crude and investors wills see that fourth quarter earnings are coming in strong,” says Meyer, which will be evidence that the collapse in crude is the biggest tax cut in memory to the American consumer, who drives 70% of economic activity in the US.”