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Oil-Focused ETF Slides with Falling Inflation

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Nov. 20 2020, Updated 5:13 p.m. ET

Producer inflation drops with energy prices

With a drop in energy prices by 3.3%, the producer price index (or PPI) for final demand remains unchanged in August compared to 0.2% in July 2015. This was above the consensus estimate of -0.2%. For the last 12 months, the final demand index moved down 0.8% in August.

A 7.7% decline in gasoline prices contributed significantly to the fall in the final demand goods index. The index dropped 0.6 % in August, whereas the index for final demand services moved up 0.4%. The margins for footwear, apparel, and accessories retailing jumped 7%. It contributed half of the advances in the index for final demand services.

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XLE continues its downtrend

Inflation is an important market moving indicator and is closely watched by the financial markets. With a continuous slide in oil prices, the PPI Index is declining while energy-based stocks are falling.

The Energy Select Sector SPDR ETF (XLE) is a passive exchange-traded fund. It includes companies from industries such as oil, gas, and consumable fuels, as well as energy equipment and services. Over the past year, it has fallen 32.7% as of September 11.

The Producer Price Index (PPI) is published by the Bureau of Labor Statistics on a monthly basis. It measures changes in prices that manufacturers and wholesalers pay for goods during various stages of production. The outlook for the US economy is relatively stable with high domestic demand and low price pressure. Any jump in PPI is a further positive sign for the economy.

If a business pays more prices for goods and services, it is likely to be passed on to the end consumers. However, a stronger dollar and the fall in crude prices is a major roadblock to the economy’s growth prospects.

Energy company prices at jaw-dropping levels

Energy-based companies such as Exxon Mobil (XOM), Schlumberger (SLB), and Kinder Morgan (KMI) were down 21.70%, 13.97%, and 29.69%, respectively, year-to-date as of September 11. Also, Chevron (CVX), which operates as both an upstream and downstream company, is down 39% over the past year. All these stocks are trading at huge discounts to their 52-week high price levels.

Consumer confidence plays a significant role in boosting economic growth. US consumer sentiment is one of them, which we’ll cover in the next article

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