How Oil Is Affecting Wall Street’s Performance

Oil’s role

In the seven calendar days to November 2, 2017, the correlations of the S&P 500 Index (SPY) and the S&P 400 Mid-Cap Index (IVOO) with US crude oil active futures were at 79.3% and 54.1%, respectively. These equity indexes rose 0.8% and 0.1%, respectively, during this period. US crude oil active futures rose 3.6% during this period.

How Oil Is Affecting Wall Street’s Performance

Between October 26 and November 2, 2017, the Dow Jones Industrial Average Index rose 0.5%. It had a correlation of just -1.2% with oil prices. Oil and gas stocks constitute 9% of this index. The S&P 400 Mid-Cap Index’s exposure to energy sector stocks is ~3.9%. The S&P 500 Index’s allocation to energy stocks is 5.9%.

European equity index the FTSE 100 Index (EWU) rose 0.9% in the trailing week. It had a correlation of just 11% with Brent crude oil active futures. However, the CAC 40 Index (EWQ) rose 1% perhaps because of a 2.7% rise in Brent crude oil January futures over this period. The CAC 40 Index had a correlation of 49.4% with Brent crude oil prices during this period. Both these European equity indexes have an allocation of over 10% to oil and gas stocks.

The movement in natural gas prices may not impact these equity indexes because, in the short term, natural-gas-weighted stocks may move independently of natural gas prices based on their correlations with natural gas.

SPDR ETFs

The rise in US crude oil prices could have helped the Energy Select Sector SPDR ETF (XLE) to rise 1.9% between October 26 and November 2, 2017. It was the third-largest gainer among our list of sector-based SPDR ETFs. The Technology Select Sector SPDR ETF (XLK) rose 3.4%, the most among the sector-based SPDR ETFs during the same period. However, the SPDR S&P Telecom ETF (XTL) fell 3.5%, the most among the SPDR ETFs during this time period.