NEW YORK : U.S. stock market investors are gauging whether more volatility is ahead because of surging global energy prices, which could drive up inflation, erode profit margins and pressure consumer spending.
Oil prices have a"roughly neutral" affect on overall corporate earnings, according to Goldman Sachs strategists, with every 10per cent increase in Brent prices boosting S&P 500 earnings per share by 0.3per cent. Despite September's pullback, the S&P 500 remains up about 17per cent so far in 2021. Even as investors swooped in to buy the market's latest dip, some Wall Street strategists are pointing to risks that could come with jumping into equities.
"If we break that barrier, I think it will influence how people are forecasting economic growth and inflation and interest rates, which has broad implications for sectors and industries and markets,” Arone said. The energy sector comprises less than 3per cent of the weight of the S&P 500, however, and rising oil prices can raise fuel and other costs for companies such as transportation firms, while also threatening demand by leading consumers to pay more, such as for gas at the pump.
However, the relative amount of consumer spending on gasoline and other energy expenditures has trended lower over the past 40 years, according to data from Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions.
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