This Dow Jones Spike Might Be Short-Lived

Photo of author

By Jacob Maslow

NYSE Building Wall Street Entrance
Entrance of the New York Stock Exchange building at Wall Street with the American flag and street name sign.

The Dow Jones had a nice little spike recently. Don’t get too attached to it. It might be short-lived. The primary reason why the stocks held a major rally recently was due to oil stocks. Oil companies that are in the Dow Jones experienced a nice rally due to the short coverage of the global price of oil. This translated to a nice Dow Jones recovery.

As you can probably already tell, due to the global consumption slowdown, this is going to be a temporary thing. For the price of oil to sustain a price higher than $75-$80, a lot has to change on the ground. Unfortunately, the total global economic picture hasn’t really cleared up to pave the way for the sustained consumption to make it happen. There are still many open questions regarding the U.S. economy. There is a major question mark as to the overall health of the jobs recovery.

You have to remember that a record number of Americans have completely given up looking for work. This means that whatever official unemployment figure may be issued by the government is inherently suspect. In short, the American economy might be weaker than reported and this might impact oil’s global overall demand. Add to this the huge supply made possible by North American shale and, to a lesser extent, Canadian tar sands, and you can see why oil doesn’t really have much to go in terms of upward momentum. Once oil reaches a certain price range, supply pressures work to send that price crashing down. Any kind of optimism triggered by the recent Dow Jones spike can definitely lead to disappointment. There is more cause for optimism if the spike was caused by non-oil stocks.

Images Courtesy of DepositPhotos