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The Jet , a $200 million 36-story project, was supposed to open this summer. Now, it looks like it won't take off anytime soon.

The developer behind the apartment complex, UrbanLogic, sold the project to Scottsdale firm Desert Troon Companies for $10 million, said Jeff Mast, director of income properties at Desert Troon.

Desert Troon still plans to build the apartments, Mast said. But it also plans to delay the project and re-tool the original plan.

While downtown Phoenix was once a hotbed for high-rise condo projects, things have cooled off. Many of the tall projects under construction downtown began before the housing slump.

"We want to wait until the market comes back," Mast said. "We want to be ahead of it."    

Under the original Jet plan, 36- and 23-story towers would have risen on the east side of Second Avenue between Fillmore and Van Buren streets. It would have had 332 apartments.

Now Desert Troon is considering building a similar apartment project, but with more units in the first phase. Offices, shops or a hotel could also be part of the project, Mast said.

The first phase of the project could cost $140 million, he estimated.

Surging oil prices have taken a toll on your budget. They undermine consumer confidence, leave less discretionary money to spend, put pressure on corporate profits and depress economic activity.

But do they also exert major damage to your investment portfolio? Don't bet on it.

Despite popular impressions that higher energy costs trigger stock-market slumps, a new study questions whether the impact is as direct, or negative, as commonly assumed.

“Oil-price fluctuations account for only a small percentage of the monthly volatility in stock prices,” write researchers Joseph Davis and Roger Aliaga-Diaz at mutual-fund giant Vanguard Group. “The relationship between oil prices and the stock market is not quite that simple.”

Basically, Vanguard found that when oil prices surge 10 percent over a short period, stock market returns historically have dropped by 1.1 percent a month. Conversely, equity prices have tended to rally 1.5 percent a month for oil-price declines of 10 percent or more.

Those figures are meaningful but largely skirt the main point. The more relevant issue, according to Vanguard, is the root cause of rising oil prices.

When oil-supply shocks trigger price surges, that's strongly negative for the stock market. Think back to the Arab oil embargo, Iran revolution disruptions and Gulf War anxiety for examples of supply shocks.

By contrast, price hikes from surging demand don't cause meaningful fallout for stocks.
Demand shocks, incidentally, include oil-price increases caused by speculators, who likely are behind a big part of the recent price runup.

When you think about it, this makes sense as demand increases typically are associated with global economic booms. That's been the case recently, even though the world economy might not feel like it's growing much given the sluggish state of affairs in the U.S.

These findings “help to explain why the stock market performed well through 2006 and the first half of 2007 as oil prices headed higher,” according to Vanguard. “A key implication is that oil-price increases do not uniformly lead to lower stock returns.”

Another reason oil-price hikes don't always hurt the broad stock market much, as Vanguard's report notes, is that certain stocks flourish with rising energy prices. This includes oil companies, oil-service firms and the like.

The energy sector now accounts for about 15 percent of the value of the Standard & Poor's 500 index. Energy stocks have closed the gap on technology stocks and financial shares, both of which weigh in around 16 percent of the S&P 500's value.

That's diversification at work — rising oil prices help energy stocks offset the damage sustained by hard-hit industries like automakers and airlines. When you buy a broadly diversified mutual fund or other investment, you get exposure to energy.

But even transportation stocks aren't all getting hit by surging fuel costs. Railroad companies, for example, have been especially robust lately.

With the Dow Jones industrial and transporation averages both showing signs of life, Charles Carlson of the DRIP Investor newsletter feels the market is in a bullish trend.

Incidentally, Vanguard's report estimates oil is overpriced. It attributes the recent runup to two factors — a surge in investment demand and erosion in the value of the dollar.

Citing other sources, Vanguard sees oil's long-term value closer to $90 a barrel, well below current prices near $130.

If the surge stems mainly from speculation, Vanguard sees a scenario under which oil prices unwind. But if it mainly reflects “precautionary demand,” lower prices might not materialize. Precautionary demand, unlike speculation, reflects a “genuine desire to hedge against future oil-supply uncertainty.”

Unfortunately, Vanguard's researchers say it's hard to know whether hedging or speculation is the primary force at work, thereby making it difficult to predict what happens to oil prices from here.

This article appears in the June 1 issue of the Arizona Republic.

Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.