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Oil’s link to the broader stock market largely depends on the dollar: expert

Scott Gamm

Movements in oil prices can affect the broader stock market if the U.S. dollar significantly fluctuates.

That’s the assessment from David Bahnsen, founder of The Bahnsen Group, with $2 billion in assets under management.

Oil (CL=F) prices surged 14.7% on Monday after air strikes in Saudi Arabia disrupted crude production. But prices retreated on Tuesday and Wednesday on expectations that production would move back online.

“I don’t [see a link between stocks and oil] other than if it starts affecting the dollar a lot,” he said. “The dollar would have a bigger impact on the market.”

While the U.S. Dollar Index (DX-Y.NYB) gained steam on Monday, it still managed to stay below 99 and gave back most of Monday’s gain in the subsequent trading sessions. A stronger dollar could hurt large multinational companies that rely on overseas revenue.

General view of the Fos-Lavera oil hub near Marseille, France, September 17. REUTERS/Jean-Paul Pelissier

“The market knows this is a short-term, transitory impact from a geopolitical event,” he said.

Trade war uncertainty

Bahnsen thinks the next catalyst to push the stock market higher or lower surrounds trade policy.

“I’m concerned of the trade war impacting business investment,” he said. “To the degree capital expenditures dry up [or] slow down enough, it could represent the beginning of the end of this bull market.”

On the flip side, a resolution on the trade front could represent a new reason to stay bullish, according to Bahnsen.


Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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