Is oil right now the biggest threat to the overall market?
On Monday, oil fell to the lowest level since March as traders worried about signs of weak demand and increasing supplies. Chevron (CVX) and Exxon Mobil (XOM) were among the biggest decliners in the Dow Jones industrial average.
As much as we would like to think that our economy is on the mend, oil is clearly sending us a different message. Oil prices touched a four-month low. WTI posted the biggest monthly decline of 2015. For the month of July, U.S. crude lost 21%
On Friday two of the biggest oil giants sent a very clear message to the stock market. Exxon reported its lowest profit since 2009. Chevron recorded its lowest profit in more than 12 years. On that news, the shares of both companies fell to their lowest levels in more than three years. Exxon cut share repurchases for the current quarter in half. There was nothing in their earnings reports even the most stalwart of bulls could find to like.
Perhaps the single greatest risk we face as investors is holding onto beliefs long after the thesis has changed. We are reluctant to recognize changes when they don't fit our thesis. We are reluctant to admit when we are wrong. To learn from it and move on. But as Holmes would say,
“The greatest sign of an ill-regulated mind is to believe things because you wish them to be so.”
“I have steadily endeavored to keep my mind free so as to give up any hypothesis, however much beloved, as soon as facts are shown to be opposed to it.”
And with that thought in mind, I present you with the facts concerning the oil sector right now.
Exxon Mobil cut its spending budget by $1.54 billion. The stock is off 22% from its high while oil prices have been cut in half. The stock has not found a bottom yet. Chevron maintained its quarterly dividend at $1.07 per share in the second quarter, Exxon raised its dividend to 73 cents per share from 69 cents in the first quarter. Hopefully, they won't have to cut. How many IRAs and 401-ks in the US will this affect? People may be very surprised when they open next month's brokerage account summary.
Digging below the numbers, Sherlock might ask: How will the crash in oil affect the economy at large? Will it impact a lot of people? Will it impact a lot of jobs? You can expect to hear of even more layoffs coming from Exxon and Chevron.
