Crossing Wall Street has an interesting chart from the St Louis Fed which I updated to account for October's data, showing the divergence between oil and the S&P 500 the past handful of years. As you can see below they track quite well with each other than a short period in early 2011. However since the middle of this year there has been a much larger divergence and it has accelerated in the last few months as equity markets get high off central bank intervention, while one could argue oil better reflects the global economy itself. Now, this is a relatively limited data set and one might argue that the Saudis are "printing" oil at a rapid pace ahead of their top customer's presidential election, but for those a bit less cynical it certainly should raise some eyebrows. Obviously for this relationship to continue the gap must close – the question is, will there be a spike in oil in the months ahead or a quite serious market correction.
We can see below that there is little healthy in the chart of West Crude at this point:
As for markets today it looked promising to get a 'wash out' type morning a few hours ago as futures were down nearly 1%, but a lot of buying has come in this morning as Apple and Amazon are flat to green. The S&P 500 spiked about 7 points in under an hour so unless something changes later today it will be another session to work off oversold conditions rather than create a neat and clean short term bottom condition. (GDP just came out 0.1% over expectation so that added another few points – note government accounted for 0.7% of the 2.0% GDP growth from what I am reading; convenient timing!)
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