Wall Street and oil

From December 7–14, 2017, US equity indexes, including the S&P 500 Index (SPY), the S&P Mid-Cap 400 Index (IVOO), and the Dow Jones Industrial Average Index (DIA) had negative correlations with US crude oil futures. Below are their correlations with oil prices during that period:

  • S&P 500 Index: -12.2%
  • S&P Mid-Cap 400 Index: -45.5%
  • Dow Jones Industrial Average: -36.3%

Is Wall Street Overlooking Oil Prices?

In the past five trading sessions, US crude oil January futures rose 0.6%. The S&P 500 Index and the Dow Jones Industrial Average rose 0.6% and 1.2%, respectively, but the S&P Mid-Cap 400 Index fell 0.9%. These equity indexes have an allocation of ~6%, ~9%, and ~3%, respectively, to energy stocks. Based on the correlations and returns, Wall Street seems to have ignored oil prices in the trailing week.

European equity indexes such as the FTSE 100 Index (EWU) had a positive correlation of 14.6%, while the CAC 40 Index (EWQ) had a negative correlation of 34.3% with Brent crude oil February 2018 futures in the seven days to December 14, 2017. Over this period, the FTSE 100 rose 1.7%, while the CAC 40 Index fell 0.5%. Brent crude oil February 2018 futures rose 1.8% during this period. Energy stocks make up more than 10% of both of these equity indexes.

Often, natural gas-weighted stocks move independently of natural gas prices. So a 2.9% fall in natural gas January futures in the trailing week isn’t as relevant to these equity indexes.

SPDR ETFs

In the seven days to December 14, 2017, the Energy Select Sector SPDR ETF (XLE) rose just 0.9%. The SPDR S&P Telecom ETF (XTL) rose 1.8% and outperformed our list of sector-based SPDR ETFs in that same period. The Materials Select Sector SPDR ETF (XLB) fell 0.7%, the largest loser for this period.

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