Breaking up? No, oil & stocks are closer than ever

Over the past 10 sessions, oil and the S&P 500 have moved in opposite directions as often as they've risen or fallen together.

This may tempt some to conclude that the market has ceased to be so reliant on oil. But such wags should know that a handful of sessions does not a trend reversal make. And when those sessions are considered within the context of recent history, a different picture emerges.

To wit: The 60-session correlation between crude and the S&P rose to 0.62 on Tuesday. That's the highest the measure has been since September 2012.


Many things impact the S&P's moves, of course. But oil appears to have outsized influence.

Over the course of 2016, the correlation between the daily moves of oil and the S&P has been 0.56. That compares with 0.46 for the S&P and the 10-year Treasury yield, and 0.21 for the S&P and the dollar index. (Correlations run from -1 to 1, with 0 indicating no relationship, and 1 indicating perfect concert.)

What's striking is how much more closely oil and stocks have been trading over the past 60 sessions versus the 60 previous sessions. The correlation has doubled.

As the chart above shows, correlations change over time, so it would be folly to expect the relationship between crude and stocks to be maintained.

However, those who say that oil and stocks are breaking apart merely because they've moved in different directions in recent days may be jumping to a conclusion.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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