Do Oil and Stocks Trade In Tandem?
There is a new trend today. Today, one can argue that it isn’t always true when what was bad for oil was bad for stocks, and vice versa.
To the investors, the adverse feedback loops have been already broken. This loop have been rattling markets earlier this year but not anymore. This means a good thing to them but it also opens the idea that the Federal Reserve will be more comfortable in raising the rates.
Before, one of the easiest way to figure out where the U.S. stocks is heading is by looking to oil.During the 20- day trading period that ended 12th of February, there were only two days that the front-month Nymex crude oil contract and the S&P 500 went opposite ways. The correlation between daily oil and stock price changes during that period was an atypically high 0.74, with 1 representing perfect correlation and zero no relation whatsoever.
The said correlation was carried by oil’s role in jumble of feedback loops that was distressing markets. In every decrease was shown as increasing the stresses facing commodity producing economies. This sparked uncertainties over oil companies’ capability to pay off debts.
All of the interacting elements in such situation made a very scary moment which resulted the Fed to dial back its rate-increase expectations.