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Is Crude Oil Affecting Wall Street Investors?

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Crude oil and the S&P 500 Index

In the week ending January 20, 2017, US crude oil (USO) (OIIL) (USL) (SCO) March futures rose 0.1%, and the S&P 500 Index (SPY) (QQQ) (IVV) fell 0.1%. The Energy Select Sector SPDR ETF (XLE) witnessed the smallest rise among the sector SPDR ETFs, rising only 0.2% between January 13 and January 20 on the back of small gains in crude oil prices.

Among the SPDR ETFs, the Consumer Staples Select Sector SPDR ETF (XLP) rose the most, reaching ~2.1% from January 13 to January 20.

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What’s the relationship?

In the past four trading sessions, crude oil and the S&P 500 Index moved in the same direction in one instance. The correlation in the last four trading sessions stood at 2.1%. This small magnitude of correlation doesn’t indicate a positive relationship between crude oil and the S&P 500 Index during this short period.

However, sentiment in the broader financial and commodity markets globally can affect securities and commodities across markets. Positive sentiment in equity markets frequently helps push crude oil prices higher.

On the other hand, weakness in the crude oil market in the past has seen equity markets also fall in fear. Notably, the energy sector accounts for ~7.3% of the S&P 500 Index, and so movements in energy prices can also directly sway the broader market index.

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