There Will be Blood!

Bill Parrott |

There Will be Blood is a 2007 movie starring Daniel Day-Lewis.   The movie is based on Upton Sinclair’s book Oil!   Mr. Sinclair’s great book was published in 1927 and dealt with the struggles of greed and fear that many faced in the early days of the oil industry in Southern California.   I am sure that if Mr. Sinclair were writing his book today, 89 years later, the story line would be the same.

The price of oil has been identified as one of the main culprits for this stock market drop.   Below is a comparison of some of the major drops in the price of oil since 1948 (Source:  Macrotrends).   As you can see, this decline in oil is similar to some of the past oil corrections.

April of 2011 through the recent low the price of oil is down 69.59%.    

May of 1980 to April of 1986 the price of oil dropped 77.24%.

October of 1990 to December of 1998 the price of oil dropped 74.43%.

July of 2008 to February of 2009 the price of oil dropped 69.59%.

November of 2000 to January of 2002 the price of oil dropped 43.78%

It is interesting to review the price of oil from May of 1980 to December of 1998 where it declined 85.75%.   The Standard & Poor 500 stock market index during this same time frame climbed 1,005% which is considered by some to be the greatest bull market in history.    This 18-year bull market in stocks averaged 17.59% per year.   During this great bull run there were 2,526 up days and 2,193 down days.   One of the down days during this great bull run included October 19, 1987 when the stock market dropped 25.73%.  (Source:  Yahoo! Finance)

I am not calling a bottom in oil.  However, if the phone rang I would answer it.

What to do today?  I would recommend to stay diversified and focus on a long term time horizon and your personal goals.  As stocks continue to take a breather the bond market is performing well.    Income that is generated from stocks, bonds and funds will continue to pay regardless of the price of the underlying asset.   

As a reminder, the stock market has always recovered.  It might take one week, one month or one year but it has always bounced back.   If you need proof, please look at the following years: 1907, 1915, 1929, 1930, 1931, 1932, 1934, 1937, 1939, 1940, 1941, 1946, 1953, 1957, 1962, 1966, 1969, 1973, 1974, 1977, 1981, 1990, 2000, 2001, 2002 and 2008.

Therefore, do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.   Matthew 6:34.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.