Oil Might Have Impacted the Fall in Equity Indexes



US equity indexes

On October 4–11, US equity indexes had the following correlations with US crude oil November futures:

  • the S&P 500 (SPY): 87.7%
  • the Dow Jones Industrial Average (DIA): 87.7%
  • the S&P Mid-Cap 400 (IVOO): 87.3%

These three equity indexes have exposure of ~5.9%, ~5.2%, and ~5.1% to the energy sector, respectively. The equity indexes fell 6%, 5.9%, and 5.8%, respectively, in the trailing week. US crude oil November futures fell 4.5% during this period.

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Oil might have a little role in equity indexes’ plunge

The correlation indicates a stronger relationship between oil and these US equity indexes. However, the factors that we discussed in Part 1 could be responsible for oil’s fall. Rising yields, earnings, and trade war concerns might have pulled the broader market.

On October 4–11, the Energy Select Sector SPDR ETF (XLE) fell 5.7%—the fourth-lowest decline among the SPDR ETFs that break the broad market into subsectors. In the previous part, we discussed that oil prices might be behind XLE’s fall along with these equity indexes’ plunge.

In the trailing week, the Utilities Select Sector SPDR ETF (XLU) rose 0.4%—the only gainer on our list. During this period, the Technology Select Sector SPDR ETF (XLK) fell 8%—the most on our list.

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


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