{"id":9928,"date":"2021-10-25T16:29:32","date_gmt":"2021-10-25T16:29:32","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9928"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"will-higher-energy-prices-stall-the-economy","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-higher-energy-prices-stall-the-economy\/","title":{"rendered":"Will Higher Energy Prices Stall the Economy?"},"content":{"rendered":"\n<p>Across the board, energy prices are on the rise. Crude oil\nprices have risen over 60% in 2021 alone, and are hovering around a seven-year\nhigh. Natural gas prices have nearly doubled in the last six months, and are\ncurrently at levels not seen since the blizzards in 2014 pummeled the\nNortheast. The national average for gas prices is over $3 a gallon \u2013 which I\u2019m\nsure many readers have noticed \u2013 and coal prices are also at record highs.<sup>1<\/sup><\/p>\n\n\n\n<p>The cause of rising prices is, as ever, a supply and demand issue. As the pandemic risk has faded and consumers have ramped up spending, it has resulted in increased production and shipping globally \u2013 which requires energy. As demand has soared, oil-exporting countries (namely, OPEC+) have only increased production incrementally, keeping supply relatively tight. <\/p>\n\n\n\n<p>On the natural gas front, inventories in the U.S. are low\nfollowing the rare winter freeze in Texas (which saw pipelines freeze and\ndemand soar), and also due to Hurricane Ida forcing almost all of the Gulf of\nMexico\u2019s gas output offline.<sup>2<\/sup> June and July\u2019s heatwaves also put a\ndent in gas inventories, particularly as a drought-stricken West could not\nproduce sufficient hydropower to power air conditioners. Europe is also staring\ndown a winter beset by higher natural gas prices, as lackluster wind-power\ngeneration and a hot summer dwindled inventory as Russia plays hardball with\nexports.<\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_10_25&amp;content=stock_market_outlook_report   \">When Uncertainty Rises, Focus on the Facts and Data! <\/a><\/strong><\/p>\n\n\n\n<p>Concerns about rising energy prices and other factors surrounding\nthe market may leave you feeling uncertain when contemplating your next\ninvesting decision. But, don\u2019t let market concerns force you to make sudden\ndecisions based on fear and emotions!<\/p>\n\n\n\n<p>Investors must stick to the facts and hard data. That is why\nwe recommend keeping your focus on the\nlong-term by looking into key economic indicators that can make a positive\nimpact on your financial success. To help you do this, I am offering all readers our\njust-released Stock Market Outlook report. This report contains some of our key\nforecasts to consider such as: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks Rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces 2021 optimism?<\/em><\/li><li><em>Zacks forecasts for the remainder of the year<\/em><\/li><li><em>Zacks Rank industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!&nbsp;<br> <strong><br>IT\u2019S FREE.&nbsp;<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_10_25&amp;content=stock_market_outlook_report   \">Download the Just-Released November 2021 Stock Market Outlook<\/a><sup>1<\/sup><\/strong><\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p>All told, of the roughly half of Americans who warm their\nhomes with natural gas, the Energy Information Administration (EIA) estimates\nthat costs could be 30% higher than last year. Those costs could be even higher\nif winter is colder than usual, or perhaps a bit lower if winter is warmer than\naverage. The bottom line, however, is that consumers should expect higher gas\nbills this winter.<\/p>\n\n\n\n<p>Many argue there is a straight line that connects higher\nenergy prices with lower consumer spending for everything else, which could\nbecome especially true heading into the winter season. In a sense, higher\nenergy prices can serve as a de facto tax on consumers, since consumers cannot\nquickly and easily change energy consumption like we can change spending on retail,\ntravel, or restaurants, for instance. If we\u2019re spending more money on energy\nbills and gas at the pump, it could mean less spending on other goods and\nservices, which could impact economic growth.<\/p>\n\n\n\n<p>Or so the argument goes. I think the reality is a bit more nuanced. For one, about 7% of consumer spending goes towards energy, according to the Labor Department. In my view, this implies that we would need to see sustained higher energy prices across the board to see a material impact on spending, since higher energy prices would need to outlast the some $2 trillion in excess savings Americans currently hold. I\u2019m not convinced that the supply-demand imbalance in the energy markets will last that long.<\/p>\n\n\n\n<p>The stock market has also weathered higher energy prices\nthan what we\u2019re seeing today. Starting with crude oil, readers may remember a\ndecade ago when oil prices averaged around $100 a barrel from early 2011 to\nmid-2014 (green circle in the chart below):<\/p>\n\n\n\n<p><strong>Crude Oil Prices\n(West Texas Intermediate) from 2009 &#8211; Present<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/pic1-6.png\" alt=\"\" class=\"wp-image-9929\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>While oil prices spent years near the $100 a barrel mark,\nstocks continued their climb within the economic expansion that followed the\n2008 Global Financial Crisis. As you can see in the chart of the S&amp;P 500\nbelow, there were certainly plenty of patches of volatility \u2013 but the positive\ntrend-line was largely unfazed by higher oil prices. <\/p>\n\n\n\n<p><strong>The S&amp;P 500 from 2012\n\u2013 End of 2014, Which Corresponded with High Crude Oil Prices<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/pic2-1.png\" alt=\"\" class=\"wp-image-9930\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>5<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>In fact, higher oil prices in the early and mid-2010s were a\ncatalyst to economic growth, as they led to increasing investment in rigs and\nshale production, which increased demand for steel, equipment, construction\nworkers, and transportation workers. <\/p>\n\n\n\n<p>A somewhat similar story can be traced in the natural gas\nmarkets. As seen in the chart below, natural gas spot prices were higher in the\nmid-2000s than they are today, but the stock market was again unfazed \u2013 every year\nfrom 2003 to 2007 was positive for the S&amp;P 500. <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/1_pic3.png\" alt=\"\" class=\"wp-image-9931\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>6<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>Higher energy costs can affect many different parts of the\neconomy \u2013 higher producer input costs, shipping costs, heating bills in the\nwinter, and prices at the pump. Taken together, higher energy costs are\ninflationary, and higher energy prices for consumers could mean less to spend\non other goods and services. Some would argue higher energy prices act as a tax\non consumers, and I do not disagree.<\/p>\n\n\n\n<p>The question is whether higher energy costs persist for\nseveral months or even years, and whether higher costs ultimately overwhelm the\ngreater than $2 trillion in excess savings American households currently have. I\nthink the answer is no. It is also important to note that on a relative basis,\nenergy prices are not at record highs \u2013 the economy and market have done well\nwith prices even higher than what we\u2019re seeing today. Higher energy bills this\nwinter may be an inconvenient reality \u2013 but I don\u2019t think it also means economic\nand market calamity. <\/p>\n\n\n\n<p>This is\nwhy we also encourage investors to focus more on key data points and economic\nindicators that positively impact their long-term investments. Through any\nmarket change, the key is to protect your assets! And to help you do this, I am\noffering all readers our just-released Stock Market Outlook report. This report\ncontains some of our key forecasts to consider such as: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks Rank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks view on equity markets<\/em><\/li><li><em>What produces 2021 optimism?<\/em><\/li><li><em>Zacks forecasts for the remainder of the year<\/em><\/li><li><em>Zacks Rank industry tables<\/em><\/li><li><em>Sell-side and buy-side consensus<\/em><\/li><li><em>And much more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!&nbsp;<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Oil and natural gas prices are rising, but do these higher costs signal an economic calamity\u2014or a temporary inconvenience?<\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9928","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9928","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9928"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9928\/revisions"}],"predecessor-version":[{"id":10282,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9928\/revisions\/10282"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9928"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9928"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9928"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}