For those who are long the market, every selloff feels gut-wrenching as the value of your portfolio drops on a daily basis. Sometimes it’s tough to look for silver linings, but that is exactly what seasoned investors do. This market decline is minor so far, but one thing that is certainly bullish is the sharp drop in commodity prices. Let’s look a little deeper into this.
Slammed
Across the board, commodities from oil to gold and silver have come down dramatically from their recent peaks. While some speculators were hung out to dry, this is a boon to the broader economy in many ways. One only has to look at oil prices to see why. At the time of this writing, a barrel of oil cost about $97, which is well off its high of $113 set not long ago. Prices at the pump will surely come down from the $5 in many areas.
This couldn’t have come at a better time for many consumers. The economy has hit what many analysts are calling a “soft spot” recently, and there was concern that sustained gas prices over $5 per gallon would further hamper the recovery. Consumers are only recently regaining some of their purchasing power through an improving labor market, but a lot of that money was going to pay for gasoline.
I think that many of the major commodities were driven to absurd levels that weren’t justified by any economic reasons. This selloff is simply returning them closer to their true value. If commodities can stay down, it will help Corporate America sustain record high profit margins which are pushing 10% these days. Earnings for the S&P 500 could take a hit if these prices were to revisit their recent highs.
Seeing commodities take a dive can be cold comfort when your portfolio is drowning in a sea of red, but looking at the positives can help you maintain some sanity during tough times. It will also put a smile on your face the next time you fill up your gas tank.
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