Stock market drop is bad news … and good news

Nova Safo Aug 24, 2015
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Stock market drop is bad news … and good news

Nova Safo Aug 24, 2015
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The broad global stocks sell-off is reshuffling the deck of winners and losers. And while there are serious economic concerns that arise from the sell-off, there may also be at least some short-term benefits.

The sell-off hit commodities hard, including nickel, aluminum and oil. Many experts say a slow down in Asia, especially in China, means less need for raw materials.

But the drop in oil prices means potential cost savings for consumers at the pump, says analyst Ian Shepherdson of Pantheon Macroeconomics. “It’s going to be an enormous drop in gas prices,” Shepherdson says, down to as low as $2 per gallon, maybe even $1.50 per gallon within the next few weeks.

Shepherdson says areas of the Northeast, which rely on heating oil during the winter, will also see savings.

“The holiday season, as far as retailers are concerned, is not very far away. And for them, to see their customers enjoying a big cash flow boost from falling energy prices, is really pretty good news,” he says.

The bad news is that the commodities sell-off is too broad, based on panic, according to Shepherdson, and that could hurt other sectors in the long run, such as agriculture. 

Still, there is potentially more good news for municipal governments. Money leaving the stock market is heading into bonds.

“It certainly reduces the rate the treasury has to pay to borrow, and that may reduce the cost of both municipalities and the federal government,” says Karen Petrou, managing partner of Federal Financial Analytics.

But Petrou cautions that if bond rates get too low, that could endanger insurance companies, pensions and people’s longterm savings.

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