Slumping oil prices have weighed heavily on global financial markets in the past couple of years. With shares of the United States Oil Fund LP (ETF) (NYSE:USO) already down more than 21 percent in 2016, Morgan Stanley analyst Andrew Sheets recently discussed the impact that oil is having on the global economy.
Early in the oil price decline, Sheets points out that economists believed that the impact would be positive for the economy by lowering fuel and materials costs for companies and increasing consumers disposable income. However, the decline has been so severe that the suffering of the Energy Sector has impacted broad economic measures of the health of the overall economy.
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While oil can't simply be ignored, it is important to remember its disproportionate impact on many metrics, including stagnant corporate earnings.
It may be more accurate to say that commodity sector earnings are collapsing, while profits for the remainder of the market are still posting moderate growth, Sheets explained.
He added that oil weakness has also triggered fears over deflation, but inflationary measures have remained steady when the impact of oil is removed.
Disclosure: the author holds no position in the stocks mentioned.
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