Chicago's Mortgage Choice - March 15, 2016 Real Estate Report - Oil Driving the Markets

You use gas produced from oil to drive to the market. Well, apparently the price of oil has been driving the markets all year. While everyone has been watching the Federal Reserve Board for clues as to which way rates are going, we think that the Fed is watching oil prices. While the price of oil does not usually drive the markets, you can see that the stock market and interest rates dropped significantly while oil prices were bottoming earlier this year. Conversely, as the stock market has rebounded in the past few weeks, so have oil prices. As you can guess, longer-term interest rates also have started trending upwards as stocks and oil prices have been rising. This is not to say that these trends will continue, but at least for now, the markets seem to be moving in tandem. As we have pointed out previously, lower oil prices are good for the economy, but the markets get spooked when they move too low. The last time this happened was the depth of the financial crisis and that is when the stock market also hit its low point of the decade. When oil prices become too low along with other commodities, this is when the Fed starts thinking about deflation risks instead of inflationary risks. We think these risks will probably cause the Fed to hold off from raising rates this month, even though our economy is still growing and producing jobs. However, if the price of oil holds at this level or rises further, the Fed will have more flexibility at the next meeting. We should note that the last report on oil inventories showed that the surplus is continuing and thus there is little chance that oil prices will start spiking any time soon. So, enjoy your ride to the market. Keith Stewart 773-529-7000