When Will High Gasoline Hurt Stocks?

Everyone has seen the rise in the major stock indexes recently. The highly followed Dow Jones Industrial Average (DJIA) traded as high as 14,000 yesterday, this level was last seen in late 2007. Nearly every talking head in the financial media is screaming about the bullish stock market on a daily basis. The one thing that people are not talking about is the high energy prices that come with the rising stock market.

Gasoline prices have been steadily rising at the pump since November 2012. Traders and investors can track the price of gasoline by following the United States Gasoline Fund (UGA). On November 2, 2012 the UGA was trading at $53.66 a share. Today, the UGA is trading at a new four year high at $64.11 a share. A gallon of regular unleaded gasoline is now averaging around $3.60 in the Eastern part of the United States. Remember, high gasoline prices are a direct tax on the U.S. consumer. Consumers have already received a tax hike in their pay checks this year after the fiscal cliff deal was struck around the New Year holiday. Consumer spending accounts for roughly 70.0 percent of the gross domestic product in the United States.

Heating oil has also climbed sharply higher over the past couple of months. This weekend, there is a major snow storm that is expected to hit the North Eastern part of the United States. This will once again cause residents to use more heating oil. Again, these high energy prices are a direct tax on the people.

What causes high energy prices? Many people ask this question, and there is a few reasons for it. Energy prices can be effected by weather and geopolitical events, however, the leading cause for high energy is the weak U.S. Dollar. You see, when the central bank prints more money it causes commodity prices such as oil, gasoline, food, and heating oil to increase. Most every major commodity trades in U.S. Dollars. So when the leaders of the U.S. tell us that they want to blame traders and create an oil task force to find out why energy prices are moving higher they simply need to look at the U.S. Dollar and the central bank.

In the past, high gasoline prices have hurt the stock markets. If you look at the price of oil and gasoline in July 2008, many traders will tell you that it was the high price of energy that broke down the U.S. consumer. Once the oil breakdown started, the decline in the major stock market indexes began to accelerate. Remember, what has happened in the past can certainly happen again in the future.