S&P 500 Direction Unaffected by Oil Prices
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- S&P 500 monthly changes have had a highly unstable correlation with crude oil since 1986, with the coefficient ranging from above +50% to below -50% over 35 years of trailing five-year windows
- Since the U.S. became a net oil exporter in September 2019, the stocks-oil correlation has steadily declined to a level "indistinguishable from zero," undercutting the theory that net-exporter status would create a reliably positive relationship
- Fundstrat's Tom Lee argues higher oil prices might actually boost the U.S. economy, framing energy costs as a tailwind rather than the headwind conventional wisdom assumes
- President Trump shifted last week from expressing concern about high oil prices to pointing out that the U.S. benefits from higher prices as a net exporter
- Financial media have attributed market rallies to falling oil prices and selloffs to rising ones ever since the Iran conflict began more than two weeks before the article's publication
- Mark Hulbert concludes that translating any correlation into a profitable strategy would also require predicting the Iran conflict's duration and how markets would react to stopgap measures like Strategic Petroleum Reserve releases
- Hulbert advises that equity allocation should not be based on oil price predictions, since forecasting the conflict's length and the oil market's response is already difficult enough on its own
Why it matters: Investors and media commentators have spent weeks treating oil prices as a reliable signal for S&P 500 direction, but the trailing five-year correlation has fallen to effectively zero since 2019. That means portfolio rebalancing or allocation shifts driven by oil-price forecasts amount to trading noise — a point the source underscores by noting the Iran conflict's duration and any SPR-release response remain fundamentally unpredictable.
