Falling Crude Oil Prices Impact Wall Street Investors



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.

Article continues below advertisement


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.


More From Market Realist