NEW YORK (TheStreet) -- There's been an inverse correlation working between the oil market and the stock market. Oil goes up and stocks come down. To the uninitiated, this would seem to make a lot of intuitive sense. After all, 48% of all the stocks on the NYSE are either directly related to oil or have energy as their primary input cost. Of course, it makes total sense that high oil prices would negatively affect stocks.
But the reality is that this is not the way it has been working.
In fact, over the last several years, oil and stocks have been moving in tandem, so closely that if you put up a daily chart of oil next to a daily chart of the S&P 500 without labels, you'd be hard pressed to tell them apart (see chart below).
As I outline in my upcoming book, Oil's Endless Bid due out from John Wiley and Sons in a few weeks, oil has become "just" another asset class, moved primarily by the amount of capital flowing into and out of it. In this way, it has mirrored the motion of stocks: As money looks to invest, it flows into oil just as easily as it flows into equities.But recently, with oil moving decisively over $100 a barrel, oil has worked as it has intended, as a hard asset hedge against other paper assets and as a diversifier from more traditional investment in stocks and bonds. But my guess is this inverse relationship just won't hold. We've seen a lot of hand wringing about the negative impact that over $100 oil prices will have on the recovery and the economy at large. An equal amount of speculation as has gone into oil has been spent on the television trying to come up with an oil price where the economy is entirely derailed, we sink back into recession, the recovery stalls and, I suppose, the world ceases to spin.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV