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Oil’s Plunge Bad for Markets, Good for Economy: Expert

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The markets had their second down day in 2015; the S&P 500 hovered near 2,000 on Tuesday, while the Dow Jones industrial average moved under 17,500 — largely in response to the further weakening in oil prices and soft economic data.

“What’s new is that you’ve had the Fed, [the European Central Bank President Mario] Draghi and the Bank of Japan coming in — constantly, consistently and getting the market to be happier, getting the market to say everything will be fine,” said Quincy Krosby, market strategist at Prudential Financial (PRU), on the TV show “Bloomberg Surveillance” Tuesday.

Asked if that continues to be the case this week, Krosby said, “Obviously not.”

“Once you have a quick plunge in any commodity, in any asset, and it will bleed over’ it will correlate over” to other parts of the market,” she explained.

The dramatic plunge in oil prices over the past few months is having an impact, the analyst believes.

“There’s the economy, and then there’s the stock market, right, and we’re see a bleeding into the market,” Krosby said.

As for the economy, “The question is: How many layoffs are we going to have in Texas … in North Dakota? In fact, the numbers are not that astounding. When you do the … the equation, it’s actually better overall for the U.S. economy,” she explained.

There’s reason to hope that oil-related companies in Houston and elsewhere “have learned a lesson” from past price drops “and have diversified,” Krosby said.

“Is it going to be painful? Sure. Yes, it will be painful, as we hear from real estate agents in Houston. But, overall, it’s better for the U.S. economy,” she concluded.

Other experts on the Bloomberg show agreed.

“First of all, it does put more money in the hands of consumers,” said Stan Collender, executive vice president of Qorvis MSL Group. “Look on social media, and there’s euphoria over [low prices for] filling up tanks.”

Second, Collender says, it is good for the federal budget, since the U.S. Defense Department is “one of the biggest users of fuel.” That lower spending may also “put more downward pressure on interest rates,” he adds.

In the political field, he predicts that “it’s only a matter of time” before there is a push for an increase in the gas tax. “And at what point would Congress discuss a bailout for oil companies in the United States?” Collender asked.

— Check out Janus Capital’s Gross, Scholes, Maris Open 2015 Playbook on ThinkAdvisor.