Economic Turmoil Could Send Oil Even Lower
Global financial markets are once again throwing up some warning signs, as the selloff in equities entirely erased the gains made in U.S. stock markets for 2018. The economic and financial turmoil could bleed over into a broader slowdown, which raises pitfalls for oil prices.
The risks to financial markets have multiplied this year. The latest catalyst has been turmoil in tech stocks, which once helped drive up the value of equities, but is now dragging down the broader financial system. As the New York Times notes, Apple was worth $1 trillion in October, but is now only worth about $880 billion, a rather dramatic decline in just a month. The so-called FANG stocks – Facebook, Amazon, Netflix and Alphabet (Google) – are not in a bear market.
The tech sector is getting hit on multiple fronts. A series of scandals at Facebook have heightened scrutiny and raised the odds of regulatory action. Profits for many tech companies are also not what they once were.
But the problem is not just with tech. Other corporate financials are spooking investors. Third quarter earnings from an array of top U.S. companies disappointed. Credit markets are also starting to sour. Bloomberg notes that both high-yield and investment-grade notes are set for losses this year in both euros and dollars, the first time that has occurred since 2008.
Goldman Sachs is telling investors to switch into cash, a sign that the bank is worried about the near-term future of global stocks. “Cash will represent a competitive asset class to stocks for the first time in many years,” Goldman analysts wrote in a note.
With 2018 coming to a close, economists are increasingly worried that 2019 will see more economic turmoil.
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