Rapid Turnaround from Bull to Bear
Investors may have been left wondering which had been a true reflection of current market conditions – Thursday’s upward surge, or Friday’s downturn. The rising oil price is one of the most influential factors in the market at present. Friday’s surge in the oil price is seen by many as a panic reaction, with prices likely to drop again on Monday. However, there are a number of reasons to believe that the oil price will continue to increase, with the resultant negative impact on the economy. Oil cannot be seen as a renewable resource and few new sources are being found. Additionally, the world-wide trend of a car for every licensed driver is pushing up the demand for fuel. Even in places like India and China where the bicycle has been an efficient means of transport, both for city-dwellers and those living in rural areas, manufacturers of cheaper cars are flooding the market. People are rapidly abandoning their bicycles for what they consider to be both a symbol of prosperity and a more efficient means of transport – and cars need fuel to run.
Consumers in America, as well as many other countries, are being hard hit by the repercussions of the oil price increase. Many are already living on credit and, due to the number of bad debts incurred, banks are very cautious about lending money, which has had an effect on the real estate market. Money that had previously been spent by households on luxury consumer goods or vacations now has to be used for fuel, both for driving and for household heating. This, in turn, hits the retailers and tourism industry, resulting in the economy slowing down and more unemployment.
There is no denying that people are going through tough times, and possibly tougher times lay ahead, but despite this somewhat gloomy outlook, the general feeling among analysts is that the market is a lot more stable. There does not seem to be any risk of the stock markets crashing, which is an improvement on the situation that prevailed a few months ago. However, consumers would be wise not to not take on any debt if it can possibly be avoided, and investors should be sure to stay diversified and liquid.