Will lower prices at the pump lead to more consumer spending and higher stock prices?
Conventional wisdom says lower gas prices mean higher stock prices. After all, when it’s cheaper to drive to a store, it’s cheaper to make more frequent trips.
But in the recent past, the data say otherwise. These days, though, conventional wisdom may have it right in the long run.
Since 2006, Reformulated Blendstock for Oxygen Blending – RBOB – has been the traded contract for gasoline on the New York Mercantile Exchange (NYMEX). From the start of 2007 to today, RBOB has a correlation coefficient with the S&P 500 Index of 0.64 (that’s with a p-value of 0.0008, in case you were wondering).
In other words, stocks and gas are more likely to trade together than not. It’s not a perfect relationship, but it’s fairly strong. And, while the relationship was generally stronger over the last five years (0.85 with a p-value of 0.0003), it’s weaker over the past year (0.25 with p-value of 0.054 so,Read More »from What lower gas prices mean for the market