Has Oil Impacted Equity Markets?



US equity indexes

Between August 30 and September 6, 2018, US equity indexes had the following correlations with US crude oil October futures:

  • the S&P 500 (SPY): 59.4%
  • the S&P Mid-Cap 400 (IVOO): 16.1%
  • the Dow Jones Industrial Average (DIA): -83.6%

These three equity indexes have ~6.3%, ~5.3%, and ~5.5% exposure to the energy sector, respectively. The S&P 500 Index and the S&P Mid-Cap 400 Index fell 0.8% and 0.4%, respectively, while the Dow Jones Industrial Average Index was unchanged in the trailing week. US crude oil October futures fell 3.5% during this period.

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Has oil impacted equity markets?

Based on their correlations, most of these equity indexes likely followed oil prices. Their returns were in order of their correlations with US crude oil prices.

Between August 30 and September 6, 2018, the Energy Select Sector SPDR ETF (XLE) fell 2.9%, the second-largest decline among the SPDR ETFs that break the broad market into subsectors. However, the fall in the broader market might have also influenced XLE as discussed in the previous part. Often, the sentiments in oil and equity markets can be interrelated.

In the past four trading sessions, the Utilities Select Sector SPDR ETF (XLU) rose 2%, the largest gainer. The Communication Services Select Sector SPDR ETF (XLC) has fallen 4.2%, the largest decline on our list during this period.

Next, we’ll discuss the important price limits for US crude oil prices next week.


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