Oil Might Not Be Blamed for Equity Indexes’ Fall

US equity indexes

On November 8–15, US equity indexes had the following correlations with US crude oil January futures:

  • the Dow Jones Industrial Average (DIA): -5.2%
  • the S&P 500 (SPY): -9.6%
  • the S&P Mid-Cap 400 (IVOO): -10.3%

These three equity indexes have exposure of ~5.2%, ~5.9%, and ~5.1% to the energy sector, respectively. The equity indexes fell 3.4%, 2.7%, and 2.1%, respectively, in the trailing week. US crude oil January futures fell 6.9% during this period.

Oil Might Not Be Blamed for Equity Indexes’ Fall

Oil fall and equity indexes

The correlation indicates a mild inverse relationship between oil and these US equity indexes.

The factors that we discussed in Part 1 could be responsible for oil’s fall. These equity indexes might have fallen due to concerns about earnings and the trade war. However, the sentiments in the oil and equity markets are often interrelated.

On November 8–15, the Energy Select Sector SPDR ETF (XLE) fell 3.2%—the third-largest decline among the SPDR ETFs that break the broad market into subsectors. In the previous part, we discussed that the broader market might have also dragged XLE apart from oil’s fall.

In the trailing week, the Real Estate Select Sector SPDR (XLRE) fell 0.3%—the lowest decline on our list. During this period, the Consumer Discretionary Select Sector SPDR ETF (XLY) fell 4.3%—the underperformer on our list. All of the SPDR ETFs ended in the red on November 8–15.

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