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Why the S&P 500 Wasn’t Able to Capitalize on Oil’s Gains

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Crude oil and the S&P 500 Index

For the week ending September 30, 2016, November US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures rose 8.5%. The S&P 500 Index (SPY) (QQQ) (IVV) rose 0.2% during the week.

Among the SPDR ETFs, the Energy Select Sector SPDR ETF (XLE) witnessed the highest rise. It rose ~4.4% between September 23 and September 30. The rise in crude oil prices in the week ending September 30 drove the 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 two instances. Their correlation in the last five trading sessions stood at -28.3%. A negative correlation shows that oil prices could not support the equity market. However, the gain in oil prices could be responsible for a marginal gain in the S&P 500 Index. The other SPDR ETFs, except XLE, closed on a negative note for the week ended September 30, 2016.

Crude oil’s price is also a leading indicator for equity markets (SPY) (QQQ) (IVV), as 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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