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Have Oil and Wall Street Diverged?

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Mar. 16 2018, Published 3:46 p.m. ET

Wall Street

The US equity indexes’ correlations with US crude oil April futures between March 8 and March 15 were:

  • the Dow Jones Industrial Average Index at 86.1%
  • the S&P 500 Index (SPY) at 8.8%
  • the S&P Mid-Cap 400 Index at -47.3%

In the trailing week, these three equity indexes’ returns were -0.1%, 0.3%, and 0.2%, respectively, with exposure of ~5.2%, ~5.5%, and ~4%, respectively, to energy stocks. In this period, US crude oil futures rose 1.8%.

Most of these equity indexes have mild positive or negative correlations with US crude oil prices. However, sentiment in the equity and oil markets are interrelated.

In this week, except for the last trading session, both US crude oil prices and the S&P 500 Index edged lower despite a mild positive correlation in the trailing week. So the bearish sentiment in the broader market because of trade war concerns could also be affecting US crude oil prices.

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Sectoral ETFs

In the last five trading sessions, the Energy Select Sector SPDR ETF (XLE) was unchanged. The Utilities Select Sector SPDR ETF (XLU) rose 1.9%—the biggest gainer during this period. The Materials Select Sector SPDR ETF (XLB) fell 1.4%—the highest in the five trading sessions up to March 15.

Often, natural gas–weighted stocks tend to follow oil prices more than natural gas prices. So natural gas prices may not impact these equity indexes in this short-term period.

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