Historically, S&P rebounds an average 23% within a year of radical oil price drop
Oil-price drops may benefit market
The drop in oil prices may have an upside: Historically, the S&P 500’s performance is mixed during a radical oil-price sell-off, but it rebounds an average of 23 percent 12 months later.
So notes Chuck Widger, founder and chairman of Brinker Capital, who generally keeps a low profile despite his $17 billion investment firm in Berwyn and his long performance record.
Widger has a new book out: Personal Benchmark (Wiley, 2014), coauthored with behavioral-finance expert Daniel Crosby.
Widger gleaned insights from Strategas Research data on oil vs. stock prices.
“Oil is driving current stock market volatility. That’s unsettling, because banks give loans to oil drillers, and smaller, highly leveraged drillers are at risk of default. Overall, the economy is in transition, adjusting to lower oil prices. Some segments hurt, and others will prosper.”
Widger found that during dramatic oil-price declines – in 1985-86, 1990-91, 2008-09, 2011, and 2014 – the stock market dropped two out of five times. In 2008-09, the Standard & Poor’s 500 index dropped 35 percent; in 2011, it went down 17 percent.
But the S&P came back “in the double digits every time,” Widger says. By March 1987, the S&P had risen 22 percent, and by September 2012, it had recovered 27 percent.
“The Fed has supported stock markets and not allowed normal disruptive market forces. Active managers do better in volatile markets, and we’re entering a period like that because QE is over and the Fed will likely increase rates.”
Vladimir de Vassal’s quantitative models are rolling over from “negative” on energy to “neutral.”
As director of quantitative research for Glenmede Investment Management, de Vassal and his team in Center City run the $896 million Glenmede Large Cap Growth Fund (GTLLX), and in 2014, it outperformed the S&P by finishing the year with a 20 percent return.
The energy sector “looks cheap. And our model has turned neutral” from negative, he says.
Last year, the fund sold off some energy shares because of poor earnings.
Adds de Vassal: “Industrials are turning positive with cheaper oil and commodity prices, which could benefit their margins assuming economic growth is favorable.”
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