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Falling Crude Oil Prices Impact Wall Street Investors

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Energy sector versus the broad market

Between October 20 and October 27, 2016, the Energy Select Sector SPDR ETF (XLE) fell 1.5%. The fall was highest among the SPDR ETFs that we’re covering in this part of the series.

US crude oil (USO) (USL) December futures fell 1.8% from October 20 to October 27, 2016, due to the various factors that we looked at earlier in this series. It primarily fueled the fall in XLE.

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SPDR ETFs

Among the SPDR ETFs, the Financial Select Sector SPDR ETF (XLF) rose the most. It rose ~1% from October 20 to October 27, 2016. The rise in the financial sector coincides with the increased expectation of a rate hike in December. The rise in the interest rate could widen the financial sector’s profit margins.

The Consumer Staples Select Sector SPDR ETF (XLP) also rose 1% during this time period. It shows investors’ stance towards defensive sectors during the 3Q16 earnings season.

During this period, the S&P 500 Index (SPY) (QQQ) (IVV) (VFINX) (IWM) fell 0.4%. The large fall in XLE clearly contributed to the fall in the broader market. The energy sector accounts for ~7.3% of the S&P 500. The returns of the ETFs in the above table are adjusted for dividends.

Crude oil this week

On October 28, 2016, at 1:42 AM EST, US crude oil (UWTI) (OIIL) was trading at $49.71 per barrel—a 2.2% fall compared to its closing price on October 21, 2016. Crude oil will likely close on a negative note like it did last week. From October 14 to October 14, 2016, crude oil fell 2.3%.

A possible reversal in crude oil (DWTI) (SCO) prices is an important factor for ETFs such as the iShares US Oil Equipment & Services ETF (IEZ), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).

In the final part of this series, we’ll see how crude oil and natural gas drive energy ETFs.

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