Markets get nervous

Markets are down over 1.5% today  with oil once again leading the decline. Many of the headlines say markets are down on oil dropping. On the face of it that doesn't seem to make sense. A decline of oil is supposed to be a boon for the economy and stimulate growth and by extension equities. What is happening in the markets now is the start of a shift in bias in why oil is dropping, Since the middle of the year much of the decline in oil has been attributed to oversupply, and I believe that is the case, but recently with more news coming out over Chinese trade doing poorly the market is starting to think that the continued decline is the demand side of the equation taking over.

While this will cause more correlation in the markets should the trend continue to be confirmed, then the market will have plenty of hiccups ahead as the oil market tries to re-balance itself to the growing supply/demand imbalance. Companies such as ConocoPhillips which I have recently wrote about, has announced a 20% reduction in expenditures in the next year and more companies will be following suit, it they already haven't. If oil keeps declining in the face of these pullbacks in supply generation, we will most likely see more selling in the equity markets and flights to safe haven assets as more market participants will see the issue then stemming from the demand side of the equation.