Oil prices keep pushing higher as tensions build in the Middle East, and the moves in crude appear to be weighing on the stock market. Overlaying the charts of the United States Oil Fund LP (USO) and the S & P 500 in recent days shows that the fund and the index appear to be inversely correlated. In other words, when the oil fund climbs during the day, the stock market tends to dip, and vice versa. This is a change from rest of the year, when there appeared to be little relationship between the price of oil and the broad stock market. Through the first nine months of 2024, the correlation coefficient between the daily moves of the S & P 500 and USO was 0.1, according to a CNBC calculation. A correlation coefficient that’s closer to 1 indicates a strong positive relationship between two variables, while one that’s near -1 suggests an inverse relationship. A value of zero, however, indicates no correlation. In midday trading Thursday, U.S. crude oil prices were up 4% , and the USO had jumped roughly 3%. Meanwhile the S & P 500 was slightly lower. Of course, the relationship could be less about the oil price itself and more about investors worrying over the burgeoning conflict between Iran and Israel. Jeremiah Buckley, portfolio manager at Janus Henderson, said on CNBC’s ” Squawk on the Street ” that the turmoil in that region of the world was a reason to be cautious. “It’s something we need to watch. In the short term, I don’t think it’s going to have a dramatic impact on markets, but certainly we need to watch what happens with energy prices and the flow of goods,” Buckley said.
Oil is driving the stock market for the first time in a long while
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