“I Told You So!” Moment: Oil-Stocks Correlation Breakdown

Great graphic from Bespoke Investment

Bespoke Invest writes,

As shown, the correlation between the stock market and oil remained positive up until just recently, but the breakup between the two has been swift and extreme. At the moment, the one-month correlation between the two stands at -0.70.

As to whether US stocks will continue to fall as oil prices move higher or if the current retracement can be interpreted as just as a normal correction has yet to be determined or resolved.

Putting on too much emphasis on the present action of the US equity markets could mislead because these markets seem to be digesting on new information or simply undergoing a normal profit-taking environment. Remember, no trend moves in a straight line.

Bottom line: the oil-equity causal relationship can't be read as a reliable indicator.