Analyzing Oil and the US Equity Market

US equity indexes

On March 29–April 5, 2018, US equity indexes’ correlations with US crude oil May futures were:

  • the S&P 500 Index (SPY) at 96.5%
  • the S&P Mid-Cap 400 Index (MDY) at 98.7%
  • the Dow Jones Industrial Average Index (DIA) at 99.4%

Analyzing Oil and the US Equity Market

These indexes had energy exposure of ~5.5%, ~3.8%, and ~5.2%, respectively.

Is oil and US equity indexes moving together?

In the trailing week, these equity indexes’ returns were 0.8%, 0.7%, and 1.7%, respectively. During this period, US crude oil May futures fell 2.2%.

However, US crude oil May futures and SPY moved in the same direction in three instances in the last four trading sessions. On April 4, 2018, SPY rose 1.2%, while US crude oil prices declined 0.2%.

On April 4, except the Energy Select Sector SPDR ETF (XLE), the remaining SPDR ETFs that break up the broad market’s performance into subsectors closed in the green. Easing trade war concerns helped equity markets rebound.

The rise in weekly US crude production could have dragged oil prices on April 4, 2018. Earlier in the trailing week, concerns surrounding Russia’s oil output could have impacted oil prices.

Although the correlations between US crude oil and these US equity indexes were near 100% in the trailing week, individual factors dominated oil and the broad equity market.

Sectoral ETFs

In the seven calendar days to April 5, 2018, XLE rose 1.8%—the largest gainer among the SPDR ETFs that break up the broad market’s performance into subsectors. The Technology Select Sector SPDR ETF (XLK) rose 0.4%—the smallest gainer in the trailing week.