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Why Are Oil Prices Keeping Wall Street Investors on Their Toes?

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Dec. 4 2020, Updated 10:42 a.m. ET

Crude oil and the S&P 500 Index

For the week ending September 23, 2016, November US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures rose 2%. The S&P 500 Index (SPY) (QQQ) (IVV) rose 1.2% during the week.

Among the SPDR ETFs, the Energy Select Sector SPDR ETF (XLE) witnessed the least rise. It rose ~0.3% from September 16–23. A fall in energy would have dragged down the overall performance of the broader market. The fall in crude oil prices toward the end of the week ending September 23 drove the marginal gain in the Energy Select Sector SPDR ETF (XLE).

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Correlation

In the past five trading sessions, crude oil and the S&P 500 Index moved in the same direction in all the five instances. Their correlation in the last five trading sessions stood at 92.7%. A positive correlation indicates the impact of oil prices on the equity market.

Crude oil’s price can also be viewed as a leading indicator for equity markets (SPY) (QQQ) (IVV), since a stronger economy means more demand for oil.

In the next and final part of our series, we’ll look at the implied volatilities of both crude oil and natural gas.

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