Stocks Get Burned As Oil Flirts With 13 Year Lows

REUTERS/Damir Sagolj

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Steve Birr Vice Reporter
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U.S. markets closed well in the red after stocks received a savaging from oil prices dipping to their lowest level since 2003.

Crude oil dipped under $27 a barrel this morning flirting with 13-year lows and spreading panic throughout global markets. The Dow Jones Industrial Average sunk over 400 points after the opening, paring losses late in the day but closing down 252 points. The S&P 500 and Nasdaq were down 22 and 16 points respectively.

Fears that the market chaos, seen since the start of the year, is not just a short-term reaction to China has been growing as the turmoil continues. The Dow’s closing level of 15,660 marked its lowest close since February 2014, causing concern among investors that the U.S. is headed into a broader slowdown, reports Market Watch.

Janet Yellen, Chair of the Federal Reserve, added to the confusion Thursday as she testified to the Senate Banking, Housing and Urban Affairs Committee. Yellen acknowledged the current downturn in markets, but downplayed any role the Federal Reserve has played.

Economists have been critical of Yellen’s decision to raise interest rates by 0.25 percent in December, questioning why we are tightening our monetary policy while others are expanding. The historic collapse in oil, which is down 75 percent from a June 2014 high of $108 a barrel, has put the stability of global growth at risk as plummeting revenues in the energy industry increases the likelihood of bankruptcies and defaults, reports CNN Money.

“Some of the precipitating factors seem to be the movement in Chinese currency and the downward move in oil prices,” Yellen said at the hearing. “I think those things have been the drivers and have been associated with broader fears in the market of weakening global growth and possible spillover into inflation. So I don’t think it’s mainly our policy.”

Yellen also discussed the possibility of negative interest rates if the U.S. should head into a longer downturn. While the Federal Reserve is still likely to raise interest rates further in 2016, Yellen admitted that there is always a chance of recession and that they would consider negative rates if there is a need for greater accommodation in the economy, according to CNBC.

“In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again,” Yellen said. “We wouldn’t take those off the table, but we have work to do to judge whether they would be workable here.”

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