Since early August, the price of crude oil has declined by more than 12%. Although $64 oil and $2.60 gasoline would have been viewed as disastrous for the economy just a year ago, the decline has provided instant relief for the market in general, and consumer-related stocks in particular.
For the past year or so, predictions of $100 oil had become commonplace, and the theory of “peak production” was gaining wide acceptance. Further, the global economic boom had put significant pressure on commodity prices, fueling inflation fears and broad gains in natural resource stocks. Conversely, as the housing market and economy showed signs of cooling, it appeared certain that the double whammy of declining home equity liquidity and rising oil prices would force the U.S. consumer to reduce spending. Consumer discretionary and technology stocks (increasingly tied to consumer spending) plummeted. Predictably, speculative forces and a herd mentality drove valuations to extremes at both ends, paving the way for disappointment – and opportunity.

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