Oil Surges on Economic Optimism

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U.S. stock markets were closed yesterday to observe the Fourth of July holiday, but when they opened this morning, traders were in a buying mood. The addition of 195,000 jobs to the economy in June won't wow anyone, but it was better than expected and shows that the labor market is slowly growing. Investors cheered the news, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 0.72% today, while the S&P 500 (SNPINDEX: ^GSPC  ) has gained 0.69%.  

Banking stocks are the biggest beneficiaries today, because this data will add to speculation that the Federal Reserve will slow its $85 billion-per-month bond-buying program, taking away the economy's crutch. The Fed's program has aimed to keep long-term interest rates low, and they will likely continue to rise now that the economy appears to be strong. There's no indication that short-term rates will rise, though, and that means banks can borrow at low short-term rates while borrowing at higher long-term rates, boosting profits.

JPMorgan Chase (NYSE: JPM  ) is up 1.9% today as investors speculate that interest rate spreads will rise and defaults will fall for the giant bank. But American Express (NYSE: AXP  ) is also up 2% because a stronger economy means fewer defaults on its credit cards, and the higher long-term interest rates could help boost profits as well. In short, it's good to be a bank investor today.

The other big mover is oil, which has jumped nearly $2 to pass $103 for the first time since early last year. A stronger economy should mean more demand for oil, which is good news for oil producers because demand has actually been dropping since 2005 in the U.S.

Chevron (NYSE: CVX  ) is the big beneficiary on the Dow today, climbing 0.9%. The company doesn't rely on the price of oil to make a profit, but a higher price can make exploration more lucrative.

The key for investors now is to identify the companies who will see a surge in profits now that oil is above $100 again and doesn't appear to be stopping there. For some currently intriguing energy plays, check out The Motley Fool's "3 Stocks for $100 Oil." For FREE access to this special report, simply click here now.

Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On July 05, 2013, at 4:34 PM, port3351 wrote:

    Can there be anymore of a disconnect from reality than on the oil markets? Economic optimism? Credit markets tell the story. Folks are maxed. Deleveraging has to continue. The unemployment rate does not count folks that have given up looking for work so it has no basis in reality.

  • Report this Comment On July 05, 2013, at 5:54 PM, serioso777 wrote:

    Seriously, If I farted long or short, loud or soft, the oil prices would change accordingly...

  • Report this Comment On July 05, 2013, at 11:20 PM, stellar92010 wrote:

    Great1! Economic optimism, more people will be working, everyone will have a little extra cash, so let's soak 'em for their gains with higher gasoline prices.

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9/30/2016 11:38 AM
^DJI $18324.97 Up +181.52 +1.00%
^GSPC $2168.16 Up +17.03 +0.79%
S&P 500 INDEX CAPS Rating: No stars
AXP $64.19 Up +0.82 +1.29%
American Express CAPS Rating: ****
CVX $102.68 Up +1.41 +1.39%
Chevron CAPS Rating: ****
JPM $66.73 Up +1.08 +1.65%
JPMorgan Chase CAPS Rating: ****