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How Broad Indexes’ Correlations with Crude Oil Are Trending

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Wall Street

In the seven calendar days to January 25, 2018, Wall Street indexes such as the S&P 500 Index (SPY), the S&P Mid-Cap 400 Index (IVOO), and the Dow Jones Industrial Average Index (DIA) had the following correlations with US crude oil futures:

  • the S&P 500 Index: -34.7%
  • the Dow Jones Industrial Average Index: -47.1%
  • the S&P Mid-Cap 400 Index: -40.1%

The energy exposure of these equity indexes are ~6%, ~9%, and ~3%, respectively. These three equity indexes rose 1.5%, 1.4%, and 1.5%, respectively, in the trailing week. US crude oil futures were 2.5% higher during this period. Even though the correlation was negative, higher oil prices should positively influence the energy stocks constituting these equity indexes. We’ll analyze this relationship in the next part.

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Between January 18 and January 25, 2018, the FTSE 100 Index (EWU) (UKX-INDEX) and the CAC 40 Index (EWQ) (PX1-INDEX) fell 1.1% and 0.2%, respectively, while Brent crude oil futures rose 1.6% during this time. These equity indexes had correlations of -34% and -56% with Brent crude oil futures during this time. More than 10% of these equity indexes are energy stocks.

Natural-gas often follows oil prices. So, these equity indexes could be less affected by movements in natural gas.

SPDR ETFs

Between January 18 and January 25, 2018, the Energy Select Sector SPDR ETF (XLE) rose 0.8%. It was the smallest gainer among the sector-based SPDR ETFs. The SPDR S&P Telecom ETF (XTL) fell 0.3% and was the only loser on our list of sector-based SPDR ETFs. The Consumer Discretionary Select Sector SPDR ETF (XLY) rose 3.1%, the highest out of all the stocks on our list.

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