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How Wall Street Is Reacting to Oil’s Gains

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Equity indexes

Between October 12 and October 19, 2017, the S&P 500 Index (SPY) had a correlation of 61.7% with US crude oil active futures. The correlation was the highest among our list of US equity indexes. The Dow Jones Industrial Average Index (DIA) had a correlation of 26.9%, while the S&P 400 Mid-Cap Index’s (IVOO) correlation was -22% with US crude oil prices during this period.

The price performances of these equity indexes in the seven calendar days to October 19, 2017, are as follows:

  • The S&P 500 Index: 0.4%
  • The S&P 400 Mid-Cap Index: 0.2%
  • The Dow Jones Industrial Average Index: 1.4%

US crude oil futures rose 1.1% during this period. For the S&P 400 Mid-Cap Index, the allocation to the energy stocks is between 6%–7%. The S&P 500 Index and the Dow Jones Industrial Average Index allocate 3%–4% of their holdings to energy stocks.

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In the last five trading sessions, the FTSE 100 Index (EWU) and the CAC 40 Index (EWQ) had correlations of 11.3% and 39.6%, respectively, with Brent crude oil active futures. During this period, the FTSE 100 Index fell 0.4%, while the CAC 40 Index rose 0.1%. A 1.7% gain in Brent crude oil active futures in the trailing week could have helped the CAC 40 Index to close in the green. These two equity indexes have allocations of more than 10% to energy stocks.

Natural gas prices may not impact these equity indexes over the short-term period because natural-gas-weighted stocks had higher correlations with crude oil compared to natural gas prices.

SPDR ETFs

In the trailing week, the Energy Select Sector SPDR ETF (XLE) fell 0.8% despite US crude oil closing in the green. The Health Care Select Sector SPDR ETF (XLV) rose 1.4% and was the largest gainer, while the SPDR S&P Telecom ETF (XTL) fell 2.1% and was the biggest loser among our list of sector-based SPDR ETFs during this time period.

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