A rise in oil prices may trigger a market-wide sell-off.
A sell-off refers to a rapid selling of any type of security, including stocks, bonds and commodities. As more investors sell, supply increases, causing a drop in the security’s value. A sell-off might be triggered by a specific event such as a poor earnings report or corporate scandal. A sell-off in the broader market often occurs when oil prices rise since investors become apprehensive about rising energy costs for companies. Ultimately though, every financial instrument experiences sell-offs naturally due to short-selling and profit-taking. Any healthy uptrend will eventually face cyclical sell-off which allows for replenished supply and renewed demand. A minor sell-off is known as a pullback while a larger sell-off may be a correction. A sell-off that has an extensive impact on the market as a whole for a long period of time can trigger a bear market. Investors often try to anticipate sell-offs and drop a stock right before they occur in order to receive the best price. Additionally, maintaining a diverse portfolio can often protect an investor from the adverse effects of sell-offs.
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