Oil vs. the S&P 500: Correlation Breakdown?

This year the major U.S. markets have been driven largely by what has happened in oil markets. Higher oil means lower stocks, and vice-versa. Right?

Well, here is a graph of the correlation between oil futures and the S&P 500 on a daily basis for the current calendar year. As you can see, there have been two periods — February and June — during the year when oil really drove the S&P 500 down, and one period — April — when the S&P 500 rose merrily, despite higher oil prices.

Of late, however, the relationship between oil and the markets seems to have begun to break down — which helps explain today’s market weakness, despite a $4 drop in oil prices.

oil-sp500

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