"At this point the market is almost held hostage to oil prices. It's very difficult to envision how the stock market moves appreciably higher with these huge swings we're seeing in oil prices now," says David Twibell, president of wealth management for Colorado Capital Bank.
The trend has been especially acute lately, particularly Friday when U.S. light, sweet crude surged nearly $11 a barreland the major stock indexes each fell about 3 percent. It repeated itself Monday when oil fell and the Dow posted a modest gain, and performed similarly Tuesday as oil lost ground through the morning and stocks gained.
"I think we're going to have, at least for the time being, an inverse relationship," Twibell says. "I don't think historically that's been the case or needs to be the case. But energy prices are so high and have gone up so rapidly that it's really a psychological influence for investors."
Volatility became a watchword in the market when the credit crunch began to take hold in September 2007.
The Chicago Board Options Exchange's Volatility Index gained about 32 percent from early September to mid-March 2008. But the VIX dropped considerably through April and May, falling well below 20, which is considered the benchmark for a volatile market.
But it is back up since then as oil has skyrocketed and stocks have given back much of their gains. At the same time, the VIX has moved back into volatility ground, and with questionable volume levels ahead for the summer the waters could be choppy.
"People keep saying that one of reasons that oil prices are so high is because global growth is so high, yet everybody seems to be looking for a slowdown in global growth. You can't have it both ways," says Brian Gendreau, investment strategist at ING Investment Management. "I think the market is having trouble sorting it all out. There are a lot of cross-currents."
Of course, not everyone thinks volatility is a bad thing, but investment advisors counsel caution when it comes to playing this type of market.
How to Play the Oil-Stocks Disconnect
Money managers typically like to find market stalwarts like Procter & Gamble during hard-to-predict economic times. The stock has been a favorite lately for market bears, including Rick Pendergraft, editor at Investor's Daily Edge online newsletter.
"Their products are everyday use items that people just don't change up that much," he says of the company.