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Has SPY Limited Oil’s Upside?

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US equity indexes

In the trailing week, US equity indexes had the following correlations with US crude oil active futures:

  • the S&P 500 (SPY): 87.4%
  • the S&P Mid-Cap 400 (IVOO): 87%
  • the Dow Jones Industrial Average (DIA): 86.9%

These three equity indexes have exposure of ~5.4%, ~5.4%, and ~3.7% to the energy sector, respectively. The equity indexes returned 0.1%, 0.2%, and -0.8%, respectively, on May 9–16. US crude oil active futures rose 1.9% during this period.

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Oil and equity indexes

The correlations indicate a positive relationship between oil and these US equity indexes. In recent months, movements in the broader market have dominated oil prices. This week, weakness in the broader market might have limited oil prices’ upside. However, rising geopolitical tensions in the Middle East contributed to the gains in oil prices.

In the trailing week, the Energy Select Sector SPDR ETF (XLE) rose 1%. XLE had the third-lowest rise among the SPDR ETFs that divide the broad market into subsectors. Weakness in the broader market might have limited XLE’s upside.

The Real Estate Select Sector SPDR (XLRE) rose 2.8% and outperformed the SPDR ETFs. The Financial Select Sector SPDR ETF (XLF) fell 0.9% and underperformed the SPDR ETFs in the trailing week. Most of the SPDR ETFs ended in the green.

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