1 Dec

Has Oil’s Fall Affected Wall Street?

WRITTEN BY Rabindra Samanta

Broader market

Between November 22 and November 30, 2017, the Dow Jones Industrial Average (DIA) and the S&P Mid-Cap 400 Index (IVOO) had correlations of just 8.3% and 3.2% with US crude oil active futures, respectively. These two equity indexes rose 3.2% and 1.9%, respectively, between these two dates. Over this time period, the S&P 500 Index (SPY) had a correlation of ~33% with US crude oil futures. In the last five trading sessions, the S&P 500 Index rose 1.9%, the least among these equity indexes. US crude oil prices fell 1.1% during the same time period.

Has Oil’s Fall Affected Wall Street?

Energy sector exposure of the S&P 500 Index, the S&P Mid-Cap 400 Index, and the Dow Jones Industrial Average Index stands at ~6%, ~3%, and ~9%, respectively.

The FTSE 100 Index (EWU) and the CAC 40 Index (EWQ) had correlations 20.8% and 31.8% with Brent crude oil February futures between November 22 and November 30, 2017. Brent crude oil February futures fell 0.6% during this period. The FTSE 100 Index fell 1.2%, and the CAC 40 Index rose just 0.4% over this period. Both of these equity indexes have more than 10% of their holdings in energy stocks.

These equity indexes may not be affected as much by natural gas prices. However, often natural gas itself follows oil prices. Natural gas-weighted stocks also tend to show similar trends.

SPDR ETFs

Despite the fall in oil prices, the Energy Select Sector SPDR ETF (XLE) rose 2.1% in the past five trading sessions. Both ExxonMobil (XOM) and Chevron Corp (CVX) gained 2.7% over this time period. These two stocks together account for ~40.2% of XLE.

The Financial Select Sector SPDR ETF (XLF) rose 4.9%, the most among our list of sector-based SPDR ETFs during this period. The Technology Select Sector SPDR ETF (XLK) fell 0.5%, the highest fall during this period.

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