Rising Crude Oil Prices Not A Bad Omen For Stocks

There are many market adages that have grown a life of their own over time. Sell in May and Go Away. A strong Dollar is Bad for Stocks. Gold is a hedge against Inflation. Gold is a store of Value in a Crisis. Most, if not all of them can be proven false if people just looked at the price data before opening their mouths.

Now that West Texas Intermediate Crude (WTIC) is breaking higher as stocks have been in a bit of a pullback range, let me give you that opportunity to examine the situation before you pull out one of those market adages. The chart below shows a lot of things. The main picture is the ratio of Crude Oil to the S&P 500 (SPX), over the last 10 years. In the lower panels are individual charts of the S&P 500 and Crude Oil over that same period.

This chart tells a very interesting story. Outside of the period shaded in blue, both the S&P 500 and Crude Oil have been rising in price at the same time. That is during 8 of the last 10 years.
In fact, what looks to be the problem area in this relationship can be found in the blue shaded area. It's a result of hyper growth in Crude Oil prices. There are many reasons that this can happen including war, a distinct possibility in the Middle East now, so it is right to be cautious about the relationship between Crude Oil and Stocks.

But as history shows via something as plain as price action, rising Crude oil Prices are not a a bad omen for stock prices. If one were to draw a correlation, one should instead reach the opposite conclusion - rising Oil Prices are good for Stock Prices. So there is your preemptive strike. Now count how many pundits and analysts misstate the obvious as Oil continues to rise.

Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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