May 7, 2020
Investors Chronicle: JD Sports, AstraZeneca, Virgin Money UK
To a limited extent, the hypothesis is wrong because the oil price has predicted some returns in the past. Low oil prices in 1989, 1993 and 1999 led to good returns, for example, while high prices in 2008 and 2012 led to equities falling. Low oil prices have tended to be mildly good for equities, and high prices bad. Each $10-per-barrel lower oil price has been associated, on average, with returns being 0.5 percentage points higher than average in the following six months. Since 1988, each $10-per-barrel lower oil price has led on average to returns on mining stocks being 1.4 percentage points above average in the following six months. One reason to believe this is the case now is that the low oil price is not mere noise but a signal: global demand is significantly weaker and more uncertain - a fact that should justify lower equity prices perhaps for several months.
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