Josh Brown: Lessons learned from an oil price drop

    oil barrels

    As oil prices slowly recover from their bottoming out in March,  Josh Brown, CEO of Ritholtz Wealth Management, has a few lessons he’s learned from the drop. In his popular blog, The Reformed Broker, he explains:

    • Oil prices can plummet in a recession or expansion, and the stock market will “shrug it off” every time.
    • Oil prices re-gain much more, an average 103.5% during an expansion; the rebound averages only 36.4% during a recession.
    • Energy stocks are not a good proxy for a rebound in oil prices.  They tend to remain depressed an average of 4.8% for the next 12 months; energy company earnings fare even worse,  tumbling 30% on average.
    • The S&P 500 rallies an average 20% in the 12 months after an oil drop. After the 1986 tumble, energy and materials stocks surged. Following the 1999 oil fall, tech and telecom rallied.
    • The S&P 500 earnings do not recover, falling between 1.2% and 6.6% in the worst year.
    Photo: Timothy Vollmer via Flickr.