Mark Hulbert: Using oil prices to time the stock market is a strategy that’s running on empty

by | Nov 29, 2022 | Stock Market

It may or may not be good news for the stock market that oil’s
CL00,
+1.48%
price is currently 40% lower than where it traded this past June. This counters the conventional wisdom that a lower oil price is good for stocks. In some past cases it was, but in others it clearly was not. This is illustrated in the chart below, which plots the trailing 36-month correlation coefficient of monthly percentage changes in the S&P 500
SPX,
-0.36%
and West Texas Intermediate crude.
WBS00,
+1.46%.
This coefficient ranges from a theoretical maximum of 1.0 (which would mean that stocks and oil are perfectly correlated, with both moving up and down in lockstep with each other) to a theoretical minimum of minus 1.0 (which would mean that the two move inversely to each other, with one zigging every time the other zagged, and vice versa).

Notice that there have been occasions since the early 1970s when this coefficient has been above 0.6, and other times when it has been below minus 0.6. The overall relationship over the past five decades is anything but stable. I reached similar conclusions when measuring oil’s track record as a leading indicato …

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