Higher Oil Prices Are About To Hurt The U.S. Consumer (USO)

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May 17, 2018 6:29am NYSE:USO

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From Bryce Coward, CFA: Rising oil prices, food prices and interest rates are likely to soon start taking a toll on the US consumer.

Over the last year, gasoline prices are up 28%, the price of cornerstone crops like corn, soy and wheat are up between 5-16%, credit card interest rates have moved to an eight year high of 13.6% and the all important mortgage rate has risen to nearly 5%. But the reason price growth in staple items/rates is now so important is because the US household savings rate has moved from 10% to just 3% since 2012.

This means that the margin of safety, or households’ ability to absorb tightening of financial conditions, is severely limited relative to even a few years ago. Absent a move higher in wages, commodity and rate inflation are likely to continue to force the savings rate toward the historic lows.

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The United States Oil Fund LP ETF (USO) rose $0.15 (+1.04%) in premarket trading Thursday. Year-to-date, USO has gained 20.40%, versus a 2.02% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #35 of 114 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of Knowledge Leaders Capital.

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