Even though oil prices have surged, stock markets have held up better than many expected. In fact, analysts at Deutsche Bank (DB) say that this situation looks different from past periods when rising energy costs led to major market selloffs. Typically, when oil spikes this much, stocks tend to fall sharply. However, this time, the reaction has been much more muted, which has caught investors’ attention.
Claim 30% Off TipRanks
New trading tool for SPY bullsFor example, Brent crude oil (CM:BZ) has remained above $100 per barrel for nearly a month, yet the S&P 500 (SPY) is down only about 5% to 6% from its highs. In past oil shocks, markets usually dropped by much more. One reason for this is that futures markets suggest that investors expect the current geopolitical tensions to be short-lived. While oil is currently trading at around $111, prices further out are much lower, with expectations falling into the $80s and even high-$70s over time.
At the same time, economic data is still showing growth rather than signs of a slowdown, which helps ease fears of a recession caused by higher oil prices. In addition, central banks have not responded with aggressive interest rate hikes like they did in previous cycles. As a result, financial conditions have remained more stable, which helps explain why stocks have remained relatively resilient despite elevated energy prices.
Is SPY Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SPY stock based on 411 Buys, 85 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $825.36 per share implies 25.8% upside potential.
