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Why Are Oil and Equity Indexes Diverging?

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Dec. 4 2020, Updated 10:52 a.m. ET

US equity indexes

On November 30–December 7, US equity indexes ended in the red. Last week, the S&P Mid-Cap 400 (IVOO), the S&P 500 (SPY), and the Dow Jones Industrial Average (DIA) fell 5.2%, 4.6%, and 4.5%, respectively. Energy stocks form ~5.1%, 5.9%, and 5.2%, respectively, of these equity indexes.

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Oil, broader market, and energy ETFs

Last week, US crude oil January futures rose 3.3%, while the Energy Select Sector SPDR ETF (XLE) fell 3.1%. XLE saw the second-lowest decline among the SPDR ETFs that break the broad market into subsectors. The broader market indexes might have a significant role in XLE’s fall. Equity indexes have fallen due to concerns about a contraction in the yield spread.

Last week, the Utilities Select Sector SPDR ETF (XLU) rose 1.6%—the highest rise on our list. The Financial Select Sector SPDR ETF (XLF) fell 6.9%—the biggest fall on our list during this period. Most of the SPDR ETFs ended in the red last week.

Energy ETFs

In the week ending on December 7, major energy subsector ETFs’ price metrics were:

  • The Alerian MLP ETF (AMLP) fell 0.9%.
  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 3.9%.
  • The VanEck Vectors Oil Refiners ETF (CRAK) fell 4.3%.
  • The VanEck Vectors Oil Services ETF (OIH) fell 6.6%.

The fall in the broader market might have been behind the fall in these energy ETFs last week.

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