If you have been wondering about the connection between oil prices and stock prices, Ken Griffin, founder and CEO of Citadel LLC, has the answer for you. Moreover, he also has a very bullish outlook for the market despite the recent tantrum that has been prevailing on the trading floors. CNBC‘s Kate Kelly spoke to him about the current macroeconomic conditions and then reported on her findings.
The market has been showing fears on account of the end of QE 3, or the third quantitative easing program, and a forthcoming rate hike by the Fed. Griffin was of the opinion that there is definitely another part of the quantitative easing program, except that it’s not going to be by the Fed. According to him, this covert operation involves the energy market, or more precisely the oil prices.
[…]Cheap gas he said is a healthy form of QE. This is money right in the pocket of American families to spend on the goods and services right in the time for holidays so that all important retail sales soar. He also predicted that natural gas will be really cheap this winter because of inventory that was built up over the summer[…]” said Kelly.
One might wonder, if this narrative were to be true, why did the stock market rise with an increase in oil price, rather than when the price was dipping. The reason is that oil price has been declining rather sharply recently and the market had no idea when the fall is going to be interrupted. If it went too low it could have devastating effects on the shale oil boom, and would also raise inflation concerns.
Yesterday’s stabilisation in the price of this major energy commodity revealed that it is going to stay at a very healthy level, which according to Griffin’s remarks is a Christmas present almost two months in advance.
Kelly also quoted Griffin highlighting other reasons for the recent sell off and why they mean little as far as U.S. economy is concerned.
“[…] New signs of weakness in peripheral Europe, fears of slow growth in Japan and long period of what he called very very mediocre growth in the developed economies all of which is driving sentiment down, still he says the U.S. economy is relatively strong and he expects to see an interest rate hike by the Fed relatively soon […],” said Kelly.
Concluding, stabilization of oil price and the good health of U.S. economy are going to drive stock prices up.
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