Surging oil prices might account for some of the stock market’s sideways performance since early September, according to one Wall Street analyst, with crude knocking on the door of a level that traditionally starts to bite into economic activity.
In a Sunday note, Julian Emanuel, chief equity and derivatives strategist at BTIG, took a look at deviations from the 24-month moving average for front-month West Texas Intermediate crude futures
CL00,
.
He noted that the top 5% of observations, which occur when the price is 57% above the 24-month-moving average, have occurred ahead of an economic slowdown.
That 57% threshold now stands at $82 a barrel — a level that November WTI futures
CLX21,
traded at Friday as it hit a nearly 14-year high (see chart below), and exceeded Monday before turning lower.
BTIG
“Such oil-price strength is likely a contributor to the rangebound nature of [the S&P 500] since the 9/2 high, along with plateauing earnings estimates, a more hawkish Fed and mixed public flows,” Emanuel wrote.
The S&P 500
SPX,
closed at a record 4,536.95 on Sept. 2. The large-cap benchmark subsequently edged down in September, retreating 5.2% from its high through Oct. 2. The S&P 500 has since steadied, ending Friday 1.5% away from its closing record. The Dow Jones Industrial Average
DJIA,
on Friday finished less than 1% away from its record close of 35,625.40, set on Aug. 16.
Through Friday, the S&P 500 was up a robust 19% for the year to date, while the Dow had advanced more than 15%. The small-cap Russell 2000
RUT,
ended Friday 4% below its record close of 2,360.17 set on March 15, leaving it up 14% so far this year.
Past slowdowns that followed oil-price spikes “have also been accompanied by increased equity market volatility albeit with medium-term small-cap outperformance,” he said, using the table below to illustrate how past crude-price jumps have affected equities in the past.
BTIG
WTI crude has rallied 68% so far this year, while Brent crude
BRN00,
,
the…
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