If you sold American oil-company stocks this week and used the money to buy the S&P Index, you made a lot of money. If, however, you were a purveyor of the Bush-is-under-the-control-of-Big-Oil-and-is-pursuing-its-interests-in-Iraq theory, then you didn’t do so well.
During the very powerful stock market rally over the past several days — in which the S&P surged by an astonishing 7.5% — the Dow Jones Energy Index (which is well representated by oil and natural gas companies) significantly underperformed the S&P. In the past year, the energy index has fallen 22%, which is equal to a $122.6 billion loss in market capitalization.
Since political events during this time period left little doubt that the U.S. would lead a coalition into war with Iraq, the above chart represents the market’s expectation of imminent war unclouded by any uncertainty about UN deliberations. The market seems to have concluded that the prospect of war in Iraq is relatively good for the U.S. economy, in general, and relatively bad to the energy sector in comparison with the general economy. The data track perfectly with a recent BuzzChart that indicates that a successful war against Saddam Hussein will — as was the case in in the early 1990s — lead to lower oil prices. Low oil prices are good for the economy — but, of course, they are bad for the companies that sell the oil.
— Jerry Bowyer is a talk show host on WPTT radio in Pittsburgh, Pennsylvania. He can be reached through www.BowyerMedia.com.