Oil, Oil Everywhere. But Not a Drop to Buy?

Despite the modest size of the energy sector (typically less than 10% of total market capitalization), crude oil and the broader stock market, as measured by the S&P 500, have had very high correlation during the past few months [Figure 1]. In fact, 51% of all days since 1983 have seen the S&P 500 and crude move in the same direction—essentially a coin flip. Yet, incredibly, 15 of the first 18 days of February have seen the two assets move in the same direction. This comes out to 83%, making February the fifth most correlated month ever, dating back to 1983. So far in 2016, the price of oil and the broad stock market have moved in the same direction 76% of all days, the highest correlation we’ve seen for any one year since 1983.

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