Broader Market Might Have Pushed Oil Higher



US equity indexes

On January 3–10, US equity indexes had the following correlations with US crude oil February futures:

  • the S&P Mid-Cap 400 (IVOO): -42.1%
  • the S&P 500 (SPY): -42%
  • the Dow Jones Industrial Average (DIA): -36%

These three equity indexes have exposure of ~5.1%, ~5.9%, and ~5.2% to the energy sector, respectively. The equity indexes rose 8%, 6.1%, and 5.8%, respectively, in the trailing week. US crude oil February futures rose 11.7% during this period.

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Oil’s rise and equity indexes

The correlations indicate an inverse relationship between oil and these US equity indexes. However, the rise in these equity indexes because of the US-China trade talks might have caused oil prices to rise. Last month, the fall in US equity indexes made oil fall sharper.

On January 3–10, the Energy Select Sector SPDR ETF (XLE) rose 7.7%—the third-largest gainer among the SPDR ETFs that break the broad market into subsectors. The rise in US equity indexes might have helped XLE’s rise, which we discussed in the previous part. During this period, the Industrial Select Sector SPDR ETF (XLI) rose 8.2%. XLI was the outperformer among sector-based SPDR ETFs. The Consumer Staples Select Sector SPDR ETF (XLP) rose 2.6%—the lowest gainer among sector-based SPDR ETFs.

All of the sector-based SPDR ETFs ended in the green in the seven calendar days to January 10.

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


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