Great economic data continues to be released in North America. In the past few weeks we have seen some terrific jobs numbers released out of the U.S., coupled with great manufacturing data and positive consumer sentiment numbers that clearly reveal the consumer is back, and spending again.

In Canada, an unexpectedly high GDP number was reported and we had a solid quarter for our major banks. Our two largest banks, Royal Bank and TD Bank, reported blow out quarters. Analysts have taken their target prices for the two stocks higher and TD increased its dividend by eight per cent. Considering all this positive news, one would think the market would be moving a lot higher. However, this has not been the case. The stock market seems to be watching the unrest in the Middle East a lot closer than it is recent positive data, causing the market to pull back rather than surge forward.

The price of oil continues to move higher, topping the $100 per barrel mark in the past week, amid fears that unrest in Libya could spread to other nations such as Saudi Arabia, the largest oil producer in the world. Currently, Libya’s oil output — which typically makes up about two per cent of the world’s oil production — has been cut in half.

This information initially caused the price of oil to spike higher. However, once Saudi Arabia confirmed they have enough oil to cover Libya’s lost output, the price of oil dipped below $100 again. Recently, there have been reports that protests will hit Saudi Arabia near the end of this week, news that has spooked the markets and left investors wondering how high the price of oil can go. As investors know, higher oil prices can act like an extra tax on individuals. If they have to spend more money to fill up their tanks, they will have less money to spend on other items, so higher oil prices can have a profound effect on the stock market.

My thoughts at this time, with respect to the recent stock market slowdown, are that it has been overblown. Yes the price of oil has spiked to more than $100 per barrel, but I thought it would have gotten there this year regardless. At the start of the year, I and many other investors believed the economy was getting better, and it has. That alone would be enough to drive the price of oil towards the $100 mark as more people would be employed, driving their cars, travelling and just simply doing more things that require energy. However, I think the economy could handle the increase in oil if it was gradual, and the unfortunate fact is that the spike in oil happened quickly, and for the wrong reasons. This is why investors and the media have taken notice.

I do believe that if oil should get north of $120 per barrel, this may cause more problems for the general public and the average investor. If oil stays at that level for a prolonged period, then I believe many, including myself, would have to change our bullish call on the North American stock markets this year. Until then, I continue to add selective investments if their price drops off. Thus, I am using the softness in the market as a buying opportunity, since I still believe the pullback is based on speculation and what ifs.

The perception to the average investor is that as the situation in the Middle East worsens, there will be a worldwide oil shortage. I do not think that is the case. Traders are currently using geopolitical tensions to take profits, and the market has been in sell off mode for the last week or so, with the exception of a few days. I recommend investors, especially those with a longer term time horizon, use this opportunity to their advantage. If the market should continue to fall, this could be a great time to pick up some names in your portfolio that were too high to purchase previously.

If you have any questions regarding the above article or are looking for an investment adviser to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you!

Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.