A good rally was spoiled yesterday afternoon as the price of crude oil dropped below $80 a barrel for the first time since 2012. Crude is now 27% off June levels. What's more, the $80 level was seen by traders as a fairly important support. That means we shouldn't expect many buyers until somewhere in the mid-$70s.
It also means lower profits for "Big Oil," of course, and those stocks were hit yesterday. They're probably nice people but let's be honest, no one is going lose any sleep over the value of Exxon's (XOM) executive stock options. What I'm interested in, and what you probably care about if you're watching this clip, is why falling gas prices aren't leading to more consumer spending elsewhere. In theory falling gas prices are a "tax cut" for consumers. I consider it a given that Americans spend $1.05 for ever buck they save. You'll never convince me otherwise.
So where are these gas savings going? If you dig into the data from yesterday and last week you get an answer that's equal parts reassuring and disturbing. Americans are spending their gas savings by, in effect, figuring out ways to buy more gas.
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Auto sales reported yesterday were at multi-year highs. In fact the dollar value on cars in total is up 60% in five years. But we're buying gas guzzlers. Sub-compacts like the Ford Fiesta saw total sales decline 2.3%. The gains consisted of crossovers like Jeep Cherokee's picking up double digits.
The average consumer spends only $2,418 per year on gas according to the government. If you switch from a Fiesta to a Cherokee you're net gas bill goes higher by thousands.
in terms of investing overall you shouldn't expect to see gas lead to higher store sales. As far as specific trades I've got shares of Tesla (TSLA) which reports tomorrow. The stock is up nearly 40% year to date but I've got a lot of questions on whether or not there's as much demand for $80,000 electric cars as there was a year ago.
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