Mitchell Clark writes: The big drop in the value of many commodities is very good news for this stock market.
All of a sudden, raw materials are cheaper in price. This is going to translate right to the bottom line of many corporations.

And one of the best developments is the weaker price of oil. Big oil stocks have done consistently well in the stock market, but smaller corporations have struggled due to the fact that the spot price has not been able to move much past the $95.00-per-barrel level. Now that spot oil is below $90.00 a barrel, transportation stocks are really going to benefit.

Of course, it takes time for big oil corporations to reduce gasoline prices. It’s common knowledge that when the spot price of oil spikes, gasoline prices immediately go higher. But when oil drops, it always takes much longer for gasoline prices to reflect reality. This is the nature of big oil, and there’s nothing that can be done about that.

The stock market is currently digesting a slew of earnings from corporations, as well as economic news that continues to show economic struggle.

But with gold, silver, and oil all trending lower, this is an absolute gift to the majority of old economy corporations.

It never used to be this way until recently, but the U.S. stock market now trades off of China’s economic data. And while China is still growing significantly, it’s all about expectations for high growth, not the degree to which the economy may be contracting.

The plunging spot price of gold is partially a reflection of the sentiment that investors have regarding risk. The demonstrated lack of inflation in posted numbers (not even close to reality) is being used by traders to justify selling in gold.

For the fourth quarter of 2012, gross domestic product (GDP) numbers were terrible for the U.S. economy. And while the stock market has been hitting new record highs, it is absolutely unreasonable to assume that first-quarter GDP numbers are going to be rosy.

Corporations have actually been doing very well, considering the lack of real economic growth in the global economy. Additionally, corporations have been extremely conservative with their economic forecasting, trying to make sure that they don’t report earnings below expectations.

My view is that the pronounced drop in the value of many commodities will be helpful to corporations and their earnings reports going forward.

The stock market is currently digesting weaker economic news, but I still feel that the overall trend for higher share prices remains intact.

This is a stock market that is desperately in need of a major correction. Given the current information, it’s probable that this will be an opportune entry point for new positions.

Source: http://www.dailygainsletter.com/stock-market/wh...

Bio: The Daily Gains Letter provides independent and unbiased research. Our goal at the Daily Gains Letter is to provide our readership with personal wealth guidance, money management and investment strategies to help our readers make more money from their investments.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.