Tuesday, February 23, 2016

#Oil and #USStocks Do Not Dance Together

The fixation of headlines on the correlation between oil and stocks will burn investors eventually. History reminds us that the relationship between oil and US stocks is causal at best; their trends are not strongly correlated (chart). The trend in US stocks is far more complex than a simple relationship with oil. In other words, those selling stocks because oil is falling and vice versa will find themselves on the wrong side of the US stock trend eventually.


Headline: Why stocks and oil dance together

A lot of folks are scratching their heads about the recent high correlation between stocks and oil, and it has inspired some high profile musing. Ben Bernanke posits that both stocks and oil are reacting to slowing global growth. Howard Marks recently told my Bloomberg colleagues on television that any correlation between stocks and oil is proof that investors simply don’t understand the relationship between the two.



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