Oil-price fluctuation is often cited as an important factor driving equities. Our work shows that this is not always the case and that the correlation between the price of oil and the S&P 500 continues to ease.
We looked at the statistical relationship in two different ways. We ran the correlation based simply on the direction of oil and the direction of the S&P 500. Then we conducted the correlation based on the percent change of each time series.
The first graphic shows the rolling 60-day correlation between the S&P 500 and oil since the beginning of last year. In early 2016, the correlation was almost perfect, but it then fell steadily, spending a good part of the second half of the year negatively correlated. Late in the year, the correlation began recovering, reaching nearly 0.8 in February. However, a month later it went into inverse territory. Today it is at -0.36. 
The second chart shows the correlation based on the percentage change of each time series. Ultimately, investors are interested in the correlation of returns. In Q1 '16, the correlation reached almost 0.60, it then fell by 2/3 to 0.20 before the end of Q2 '16. It recovered in Q3 but was unable to surpass earlier levels. By the time OPEC announced its decision to reduce output to encourage a draw-down in oil inventories, the correlation was trending lower. It briefly dipped into negative territory in February before it recovered in March, but has been trending gently lower over the past two months and is now near 0.18.
The takeaway is that based on current correlations, investors in the S&P 500 should not put much weight on the direction of oil. The correlation is not particularly stable and is low. Of course, some sectors will be more sensitive than other sectors to the change in oil prices. However, oil prices will not give one much help in anticipating the S&P 500's next move. 