We don’t believe that lower oil prices pose a fundamental threat to equities; energy accounts for a relatively small weight in most equity indices. In addition, consumer stocks, a larger portion of most equity benchmarks, are likely to be net beneficiaries of lower oil prices.
But falling oil prices are having a more mixed impact on bonds. Lower energy prices are helping to reduce inflation and dampen inflation volatility, particularly in the United States. However, lower energy prices are causing some distress in several smaller high yield issuers, putting some pressure on that segment of the market.