Market Strength: Oil and Bonds
AAA
  1. Market Strength: Introduction
  2. Market Strength: S&P 500 Futures
  3. Market Strength: Advancers to Decliners
  4. Market Strength: Relative Strength Index and Arms
  5. Market Strength: Oil and Bonds
  6. Market Strength: Conclusion

Market Strength: Oil and Bonds


The price of oil and bonds as they relate to market strength is a wide topic, but these are two areas tend to have a large influence over the markets. In this section, we will address the basics of using the prices of these vehicles to determine market strength.

Oil
Energy is one commodity that affects every company in one way or another. For example, the price of wheat makes a greater impact on agriculture stocks, but oil influences everything from the cost of electricity and heating, to the cost of production and transportation. When the price of commodities, and particularly oil, is on the rise it signals that inflation is starting to become apparent. The day-to-day price fluctuations won't cause inflation fears, but the long-term trend will. If the price of oil has been steadily increasing, it could cause investors to be fearful that inflating energy prices will slow company profits.

The price of oil has an opposite effect on those stocks directly influenced by the price of oil. Drilling, pipeline and retail distribution of energy stocks tend to have an extremely high correlation to the price of oil.

Bond Prices
Ten and 30 year bonds, along with interest rate futures are another indicator used by many investors to gauge the strength of the stock market. As you may already know, if bond prices are going up, then yields are decreasing. This decrease in yields causes investors to search for other areas in which to invest their money at a higher return - this usually means the stock market. On the other end of the equation, lower bond yields means that interest rates are low and companies will find it much cheaper to borrow money and finance expansion or growth.

While bond and oil prices might not be as accurate and current as the S&P 500 futures, they are the useful when looking at the overall condition of the economy and, more importantly, at the trend of the stock market.

Market Strength: Conclusion

  1. Market Strength: Introduction
  2. Market Strength: S&P 500 Futures
  3. Market Strength: Advancers to Decliners
  4. Market Strength: Relative Strength Index and Arms
  5. Market Strength: Oil and Bonds
  6. Market Strength: Conclusion
RELATED TERMS
  1. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
  2. Bjerksund-Stensland Model

    A closed-form option pricing model used to calculate the price ...
  3. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
  4. Kenney Rule

    A ratio of an insurance company’s unearned premiums to its policyholders’ ...
  5. Discounted Future Earnings

    A method of valuation to estimate the value of a firm.
  6. Altman Z-Score

    The output of a credit-strength test that gauges a publicly traded ...
  1. What happens to the company stock if a subsidiary gets spun off?

    Learn what happens to a company's stock if a subsidiary gets spun off. Spinoffs are typically bullish catalysts for a company ...
  2. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Find out more about book value of equity per share, what BVPS measures and how to determine what level of BVPS indicates ...
  3. What are some tactics businesses can use to increase unlevered free cash flow?

    Learn about ways firms increase their unlevered free cash flow through inventory management, capital expenditures, increased ...
  4. What level of annual growth is common for companies in the Internet sector?

    Learn what level of annual growth is common for companies in the Internet sector in terms of revenue growth and earnings ...

You May Also Like

Related Tutorials
  1. Fundamental Analysis

    Ethical Investing Tutorial

  2. Investing Basics

    Industry Handbook

  3. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  4. Fundamental Analysis

    Discounted Cash Flow Analysis

  5. Fundamental Analysis

    Ratio Analysis Tutorial

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!