Skip to comments.The changing correlation between the S&P 500 and oil
Posted on 07/05/2014 5:19:57 PM PDT by Lorianne
Today we investigate the relationship between oil and the broad US market, using the S&P 500 index as a proxy.
A common thought is that the two functions are inversely correlated, with the US market in danger whenever oil rises too high.
The relationship has been a complex one over the past 11 years, but the correlation is positive most of the time.
In particular, we see from 2003 until late 2007, both oil and the market rose in tandem. The only time the two records show an inverse correlation was during the windup to the financial crisis--from late 2007 to July 2008.
It doesn't seem logical that the S&P should be positively correlated to oil prices--so it is more likely that both records are correlated to the same thing--inflation. But what to make of the last 18 months, in which we see an almost vertical rise in the stock market without an increase in the oil price? Is an American renaissance in the works, powered by increased American oil production? Or is it due to the much rumoured mass purchase of securities by financial institutions, powered by monetary creation? Is it being done to prevent another period of negative correlation, which might foretell another economic crisis? Stay tuned . . .
A fascinating correlation, the S&P and Oil prices - but correlation doesn’t mean causation. When the value of money is driven down the toilet by the central banks, the price of commodities as well as stock valuation tend to rise ...
Sir Winston Churchill:....”There are lies, dammed lies and statistics”
Yet the VIX continues to tank. Nothing going on these days makes much sense, thanks to the 0bamanation.
The US is using less oil and producing more oil. The price is high due to that focktard that occupies the WH and his Fed cronies. Invest in guillotines.
Oil prices certainly have an impact on corporate profitability, but this is only one element. The easy money policies in place since the crisis of ‘08 have as much or more influence. And, the so-called “fracking revolution” has also had an impact.
As one who studies this at moderate length, the appetite for securities themselves also has a major effect. The major oils generally pay decent dividends, certainly relative to savings account or CD yields (XOM: 2.7% COP 3.2% CVX 3.2%) and this is a big sector in the SP500.
There are lots of moving parts in this equation and while at many times I have thought there have been correlations, I believe those connections are very weak; precisely because there are so many more elements in the math.