Several outlets have recently made the point that the inverse correlation between stock and oil prices just ain’t what it used to be. The price of crude, which had jumped about 17% in just over two weeks, is no longer completely wagging the stock-market tail, even though stocks have, for now, left their 2011 highs in the wake.
This seems to be often presented as more than just an exercise in mathematics, as if it’s a sign that oil has withstood the worst of oil’s rise and the day will soon come — perhaps it’s already here — where another 10% rise in oil prices (to $120 a barrel) over the next month would only mean a slip of 1% or 2% in the market.
But what if the whole relationship has been underestimated?
After all, an extended period of higher oil prices brings an entire other world into play: what does higher oil prices mean for geopolitical risks, for the U.S. consumer, for global food prices?
Monday’s market session, it seems, was not the strongest argument that investors have priced in all of the above. Oil touched a new two-and-a-half year high, although it did close to only a 0.9% gain to $105.44, and stocks fell for a second straight session.
The Dow Jones Industrial Average fell 80 points to 12,090, while the S&P 500 was off 11 points to 1310.
We’ve also made the point in this space that the price of oil wouldn’t seem to have a lot to do with tech stocks or small-caps, which, as so often has happened in this recent equities tug of war, were the day’s big underperformers. The Nasdaq fell 39 points to 2746, while the Russell 2000 Index was off 1.5%.
What today’s trade does suggest, however, is that whatever investors’ thoughts about how much further higher oil prices can move the market lower, it’s likely to be even more of an impact on the momentum plays that have been pushing the market higher while oil was “reasonable.”
A pullback from oil prices and a rebound in the dollar also mitigated the fresh highs in gold and silver. The 10-year note saw its yield move back above 3.5% for the second time since Feb. 18.
That late slide in crude also helped airline stocks into the green as a whole — and end up being one of the best-performing sectors of the day. United Continental (NYSE:UAL) closed up 4.7%, while Delta (NYSE:DAL) was up 1.8%. The Dow Jones Airline Index had fallen about 12% since Feb. 18.
But oil’s impact is over, right?
