Crude oil, natural gas, and the S&P 500 Index
Last week, US crude oil (USO) (OIIL) (USL) (SCO) May futures rose 5.5%. Natural gas May futures rose 1.2%. The broad market S&P 500 Index (VFINX) (SPY) (SPX-INDEX) rose 0.8%, and the Dow Jones Industrial Average (DIA) (DJIA-INDEX) rose 0.3% during the same week.
The Energy Select Sector SPDR ETF (XLE) rose 2% between March 24 and March 31, 2017. It was the largest gainer among the sector SPDR ETFs. The rise in XLE corresponds to the gain in oil prices. Among the SPDR ETFs, the Utilities Select Sector SPDR ETF (XLU) fell the most with a fall of ~1.1% between March 24 and March 31, 2017. The returns of the SPDR ETFs are adjusted for dividends.
Correlations of crude oil and S&P 500
Last week, the S&P 500 Index closed at 2,362.7. In the past five trading sessions, crude oil and the S&P 500 Index moved in the same direction four times on a closing price basis. Natural gas and the S&P 500 Index also moved in the same direction in four instances.
The correlation between crude oil and the S&P 500 was 48.5%. The correlation between natural gas and the S&P 500 was 39.8%. However, the correlation between natural gas and the S&P 500 during that short period isn’t useful because natural-gas-weighted stocks are less aligned to natural gas price movements.
The global sentiment in the broader financial and commodity markets could affect securities and commodities across the markets. In the past, weakness in the crude oil market caused equity markets to fall due to fear.
The energy sector accounts for ~7.6% of the S&P 500 Index and ~6.4% of the Dow Jones Industrial Average. Movements in energy prices can also directly sway the broader market index.