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How a Recovery in Oil Prices Could Drive Wall Street’s Gains

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Dec. 4 2020, Updated 10:53 a.m. ET

Equity indexes

Between August 24 and August 31, 2017, the S&P 400 Mid-Cap Index (IVOO) had the second-highest correlation of 72.3% with US crude oil active futures among our list of equity indexes. It rose 1.7% and outperformed other equity indexes during this period. Although US crude oil October futures fell 0.4% in the last five trading sessions, on August 31, 2017, the S&P 400 Mid-Cap Index rose 0.8% with the 2.8% recovery in oil prices.

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In the trailing week, the Dow Jones Industrial Average Index (DIA) had the highest correlation of 77.7% with US crude oil active futures. The S&P 500 Index (SPY) had a correlation of 61.5% with oil prices during this period. We already discussed the price performance of these two equity indexes in part one of this series. These two equity indexes also rose with the recovery in oil prices on August 31, 2017.

In the last five trading sessions, European equity indexes the FTSE 100 Index (EWU) and the CAC 40 Index (EWQ) had correlations of 42.4% and 46.5% with US crude oil active futures, respectively. The FTSE 100 Index rose 0.3%, while the CAC 40 Index fell 0.5% during this period.

These equity indexes’ allocations to the energy sector are as follows:

  • The S&P 500 Index: 6% to 7%
  • The S&P 400 Mid-Cap Index: 3% to 4%
  • The Dow Jones Industrial Average Index: 6% to 7%
  • The FTSE 100 Index: over 10%
  • The CAC 40 Index: over 10%

SPDR ETFs

In the seven calendar days to August 31, 2017, the Energy Select Sector SPDR ETF (XLE) rose 0.4%. Among the SPDR sector-based ETFs, the Health Care Select Sector SPDR ETF (XLV) rose 3% and outdid its peers during this time period. The Financial Select Sector SPDR Fund (XLF) fell 0.2% and was the only loser among sector-based SPDR ETFs over this time period.

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