An American fuel gauge on the fritz and proving tough to fix

A key American fuel gauge is on the fritz, and no one seems sure how to fix it — is cheap gas helping the economy or isn't it?

The correlation between oil prices and the stock market has reached a level only rarely ever seen — if oil tanks, it takes stocks right down with it. It's the tightest correlation in 26 years, according to the Wall Street Journal. Meanwhile, economists are puzzled that the "lower for longer" gas prices have not contributed more to consumer spending.

Wal-Mart is closing stores, and Amazon reported holiday sales that, while good, were not as good as expected, and share of the country's leading online retailer cratered. Meanwhile, the consumer sentiment report released Friday came in slightly below expectations and declined from the previous reading.

For investors who buy the bull argument that cheap gas will be a tailwind for the U.S. market, the lack of a clear winner in the "cheap gas" debate provides little comfort. In laying out a bull case this week for the economy amid the market volatility and worst month for the stocks since 2009, Liz Ann Sonders, chief investment strategist at Charles Schwab, cited the cheap gas boost to the American consumer.

Yet in looking at the 10 sectors of the S&P 500 over two key recent periods in the oil collapse — when WTI crude first dipped below $65 and then first dipped below $40 through this week — only one sector of the stock market has managed to stay positive to any notable degree: telecom (consumer staples has posted positive, but basically flat performance since August 2015), according to S&P Capital IQ data. The sector that is causing all the pain is doing better than the rest of the sectors this year: In January, large-cap energy outperformed the as a whole.

The answer to the "cheap gas boost" dilemma may be a key to an investor's overall view of the direction in which the U.S. economy is heading. The latest GDP figure released Friday showed growth slowing to 0.7 percent.

Some cheap gas bulls are frustrated that they're view is no longer the prevailing sentiment.

John Kilduff, Again Capital partner and CNBC contributor, said he is in "disbelief" that low oil prices could be considered negative for the US economy.

"Upwards of 80 percent of the U.S. economy is consumer-based and U.S. drivers are savings upwards of $700 million per day with the current gas prices versus the recent high-priced past," Kilduff recently told CNBC.

He said states like New York, Florida, and California that see a lot of tourism and regions with industries that are dependent on buying fuel for everyday business activities are reaping the benefits of cheap oil and gas.

Lower fuel prices are also good for states like Ohio, Illinois and Michigan and could bring help to more rural states with large farming sectors like Iowa and Kansas. Yet the entire agricultural sector — from crop prices to farmland values and stocks such as Monsanto and Deere — have been slammed.

"This is good for the entire transport sector, which includes airlines, trucking companies, and freight companies as well as fast food conglomerates and retailers (especially lower-end)," Kilduff said.

Moody's Investors Service v.p. Kurt Krummenacker said there was a clear connection between low oil prices and the positive effects it has on airports, seaports, and toll roads.

"For each of these, low oil prices incentivize the moving of people (airports, roads) and the moving of goods (seaports), which generate revenue."

Yet ETFs that track the transport and shipping sectors are doing little better — some worse — than the overall market.

Airlines stocks are down by 15 percent this year and the Guggenheim Shipping ETF, for example, is down by 14 percent. Trucking and rail stocks are in the red — though some like J.B. Hunt down less than the broader market, while others down more than the S&P 500.

The latest durable goods report released on Thursday showed that durable goods orders plunged 5.1 percent last month, the biggest drop since August 2014, after slipping 0.5 percent in November, according to Reuters. Orders for transportation equipment plunged 12.4 percent and bookings for non-defense aircraft plummeted 29.4 percent.

The data speaks to the many who remain skeptical of the upside to the cheap price of gas.

"The economic benefit to the U.S. as a result of low oil prices has been called into question due to the amount of economic activity that was generated as a result of the shale boom, itself," Anthony Starkey, manager of energy analysis at Platts Bentek, an analytics and forecasting unit of Platts, an energy and commodities information provider. "The shale boom created high paying jobs and generated demand for investments in infrastructure to drill for, transport, and refine oil. All of this was funded with $100 oil and now that those prices have crashed, so too has the money it created in spurring that growth."

Kilduff cited reports from the JPMorgan Chase Institute and Visa on the consumer spending boost in making his case, but there's an interesting footnote — both reports were from the Spring 2015.

Diana Farrell, the CEO of the JPMorgan Chase Institute and lead author of the report, said the answer to the riddle is this: cheap gas did help the economy — past tense.

In the period that JPMorgan studied — April 2014 through January 2015 — there was a boost in consumer spending which the bank could track because it used debit and credit card transactions as the basis for its research. But in the update that JPMorgan plans to release this Spring using more current data, Farrell said the conclusion will be different: the boost from cheap gas already occurred and isn't still happening, and likely won't again.

Farrell made three additional points that "cheap gas bulls" don't mention.

Gas simply is not that big of a consumer item. "Gas prices are 5 percent of total consumer spending," Farrell said. "It looms large in our minds because we drive by gas stations every day but we've gotten to a level in wealth and fuel efficiency where it's just 5 percent of spend."

Even in the period during which JPMorgan tracked the boost in spending, it was still below previous periods of time when Americans had more in their wallets due to low gas prices. "In the past we've seen 100 percent spend or higher," Farrell said, explaining that during past periods of low oil prices Americans have spent more than they should.

There's a reason for that: the boost that JPMorgan found came amid an overall deceleration in spending. "We've seen a pretty significant decline since the beginning of 2014," Farrell said.

So while more Americans are paying down debt, spending on SUVs and pickups, dining out and paying up for premium gas, it's "isolated within the much broader context of deceleration" in spending.

Daniel Dicker, author of Shale Boom Shale Bust, told CNBC that the idea of a multi-billion dollar tax rebate from low oil just does not add up.

"I think that gas is one of those inelastic consumer items that people grouse about but really make little adjustment in the rest of their lives for, whether it's $2 a gallon or $5 a gallon," Dicker said.

Still, those filling up their gas tanks with prices less than two dollars for a gallon of regular are welcoming what they see.

"I can save money on gas, so why not travel? Ten dollars will fill up your tank sometimes," a driver told CNBC.

Another consumer also said he was doing much more traveling now that gas prices are so low.

"It's a blessing."

Kilduff said prices have taken another major leg down since JPMorgan last studied the data. "In my view, consumers are increasingly seeing the savings as lasting now. ... I have been through this before, and several times in the opposite scenario. The pattern is always the same."

Farrell said unless there is another major leg down in gas prices from here, "It's already built into GDP. We won't get more of a boost. And the really big decline is done and we wouldn't expect more."

Kilduff had an answer to that belief, too: oil is going to $18, he said on CNBC on Friday morning.

"That money is going to be going to paying down debt to enjoying themselves and to prop up this economy. I don't wanna know where we would be if it weren't for sub-two dollar gas," he said.

But the more important question is where we're going.

In the mean time, the best bet might be to buy an SUV, or a toll road.