My research paper focuses on the relationship between oil and market stability.
Oil is one of the most unstable markets in the past 3 years. In recent events, including the impact of COVID-19, the US- China Trade War, the Russo- Ukrainian War, and the Israel Hamas Conflict, there have been a notable disruption in the supply chain. The price of oil skyrockected from 69.89 to 100.08 U.S. Dollars per barrel. These geopolitical and pandemic-related factors have collectively contributed to a significant increase in inflation, reaching the highest levels in the past 20 years.
Aside from the increasing crude oil price and the inflation, the relationship between the stock market and oil seems to change during this period.
Our research shows that oil is no longer a significant factor in affecting the stock market valuation after 2013, which is the year when the U.S. and China trade tensions started escalating. We believed that is the time when the geopolitical started to play an important role here in determine overall economic well-being, causing the change between oil and stock market.
Now the globalization appears to be at a tipping point after the 2020 Pandemic. Many companies that used to outsource their inputs from around the world now face tough times and are being forced to relocate their factories. Reshoring, a long and costly process, can prompt deglobalization and increase the production cost significantly.
The change of the relationship between these two variables indicates a possible shift in the era, meaning the LRAS (Long Run Aggregate Supply) curves might inward.
In other words, what we are facing right now is very similar to the 1970s where we had an unstable geopolitical, a disturbance of oil supply, and a poor global economic condition. Therefore, this paper aim to analyze the change from 1970~2023, and discuss about the future financial condition.
***Disclaimer: All investments involve some degree of risk; The data is for reference only.