Oil and stock markets have moved in lockstep this year, a rare coupling that highlights fears about global economic growth.
As oil prices tumbled early in 2016, global equities recorded one of their worst-ever starts for a new year. On Monday, oil and stocks were lower again. The S&P 500 index was down 0.7% in midday New York trading, and Brent crude futures, the global benchmark, were down $1.37 a barrel, or 4.3%, to $30.81. That followed a joint rebound on Friday.
The correlation between the price of Brent and the S&P 500 stock index is at levels not seen in the past 26 years. January isn’t over yet, but over the past 20 trading days – an average month – the correlation is 0.97, higher than any calendar month since 1990, according to data from both benchmarks examined by The Wall Street Journal. A correlation of 1 would mean oil and stock prices move by the same proportion in the same direction, while a correlation of minus 1 would mean they move proportionally in opposite directions. Looking at daily returns in the two markets shows a looser correlation, but still a tight relationship by historical standards.
This post was published at David Stockmans Contra Corner on January 26, 2016.
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