On March 22–29, 2018, US equity indexes’ correlations with US crude oil May futures were:
- the S&P 500 Index (SPY) at 33.1%
- the S&P Mid-Cap 400 Index at 31.8%
- the Dow Jones Industrial Average Index at -38.2%
During this period, these equity indexes’ returns were -0.1%, 0.2%, and 0.6%, respectively. Their energy exposure is ~5.5%, ~3.8%, and ~5.2%, respectively. In the seven calendar days to March 29, 2018, US crude oil May futures rose 1%.
Are the sentiments across Wall Street and oil related?
In Part 1, we discussed the factors that could have impacted oil prices in the trailing week. Concerns surrounding global trade could have limited the upside in these equity indexes.
The correlation between the S&P 500 Index and crude oil prices was mildly positive in the trailing week. On March 27–29, 2018, oil prices and the S&P 500 Index moved in the same direction. So, US crude oil and the S&P 500 Index moved together in three out of the last five trading sessions.
Individual factors also dominate equity and the oil market. In the trailing week, the correlation between oil and the S&P 500 Index was lower compared to the correlations that we discussed in the previous part between the S&P 500 Index and energy subsector ETFs.
In the past five trading days, the Energy Select Sector SPDR ETF (XLE) rose 0.3%—the second-lowest gainer among the SPDR ETFs that break up the broad market’s performance into subsectors. The Consumer Staples Select Sector SPDR ETF (XLP) rose 2.2%—the largest gainer in the trailing week. The SPDR S&P Telecom ETF (XTL) fell 2%—the largest loss on our list during this period.