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Will July 2022 See a Major Correction in the Stock Market ?

Tom Therramus's picture
Researcher Self-employed

Tom Therramus writes on instability in the oil markets and its impacts on economics, politics and climate change. He believes:  1. Peak Oil is real; 2. Climate Change is real;  3. And...

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  • Jun 24, 2022
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Last October, I predicted that a period from late Winter 2021 to late Spring of 2022 would see a surge of price volatility in oil - see https://lnkd.in/gfGzxAsz. This duly occurred with the first spike in price variance occurring on 25 November 2021. The Ukraine war increased whatever underlying instability was present in oil markets, however, the fact is that initiation of the current volatile phase occurred well before the start of the war.

The current surge in oil price volatility falls into an oscillating sequence that I have observed and reported on since 2009 - see the article linked to this post and my interview with Jim Kunstler https://lnkd.in/gCDse-GC. Previous phases of notably heightened oil price volatility have occurred in 2001, 2004, 2008, 2011, 2014, and 2018 - roughly on a 3-4 year cycle.

In my article of October 2021 I also speculated that the surge in oil market volatility will be followed by a correction, and perhaps a crash, in the stock market. This is because this is what happened following the previous 2001, 2004, 2008, 2011, 2014, and 2018 phases of instability in the oil markets. In 2022 we have seen a 20-30 % drop in stock prices so far - though not what could be described as a crash - more of a bear market.

I have done some “back of the envelope calculations” based on the timing of peak of the previous volatile phases in oil price since 2000 (there have been 5) and how long, on average, it took for the effect to propagate into the stock markets. I estimate that the mean lag between the effect in the oil market and peak response of the stock market was 142 days, with a standard deviation of 138 days. 

The current volatile phase in the oil markets began in late November 2021, peaked on February 10 2022. Oil price appears to remain somewhat volatile, but shows signs of returning to a lower level of volatility in June 2022. If we take the peak date of February 10 and add on the 142 day lag period, then we might anticipate that the likeliest timing of any major response in the stock market is going to be most probable sometime around mid July 2022. Obviously, with a standard deviation of 138 days, one can not be confident in this prediction with a high degree of precision. Nonetheless, I’m keeping my own powder dry for the next few months.

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Jim Stack's picture
Jim Stack on Jun 28, 2022

Predicting the markets can be very hard. Doing it a few times in a row would be really amazing. There are so many factors that can affect it. I have had some information from people who have worked in the markets for over 50 years but they still don't know what will happen in the next year. 

Tom Therramus's picture
Tom Therramus on Jun 30, 2022

Thanks for the comment Jim. A beloved Mark Twain comment of mine - and there are so many to enjoy - "The art of prophecy is very difficult, especially with respect to the future." Acknowledging this caveat - My observation is that cyclic variations in oil price have occurred in every 3 to 4 years since 2000. Each time they occur they have been accompanied by a following correction or crash in stock value. The average lag between oil and stock is 142 days - which is to say that oil price variance appears to be the determinative factor. Note also I emphasize in my post that this average of 142 days has a standard deviation of 138 days, thus tempering confidence in the degree of precision of a mid July 2022 timing for ructions in the stock market. In the end all comes down to likelihoods as guided by statistics from past observations ...

I have written at length for more than a decade that I believe the oscillation in the oil market results from imbalances in supply and demand at the summit of the global oil production curve - i.e., peak oil - though the exact mechanism for this cycle remains mysterious.

And, is if on cue this is the lead article in the NYTimes today....

https://lnkd.in/gtDzND_7

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