While all S&P 500 sectors commonly rise with crude oil, it remains rare for all of the sectors to also decline when oil dips, but August demonstrated an anomaly.
In August, energy was oddly the only commodity sector which rose, said Jodie Gunzberg, global head of commodities and real assets at New York-based S&P Dow Jones Indices. When oil prices increase, historically other equity sectors fall into tandem as well. In September, oil dipped and all the equity sectors also declined. The last occurrence was in June 2011 when the S&P 500 lost 14.0% in the following three months.
"The last time the unusual lonely rise of energy in the commodity spectrum happened in March 2008, it took place near the same time as the as the unusual simultaneous equity sector drop back in January 2008, right after the peak before the global financial crisis," she said.
During 120 positive oil months starting from January 1999, six or more sectors were positive in 74 of those months or 62% of the time, according to data.
"In fact, there were 17 months where all ten sectors were positive with rising oil, which was the most common scenario with rising oil," Gunzberg said.
When oil prices fell during that ten-year period, the impact was not obvious with ten sectors which fell simultaneously with oil in eight months of 93 negative oil months and a total of 213 months in the time period.
"It's mixed bag for equities if oil falls and the correlation is more consistent when it rises," she said. "When oil increases, the other sectors should rise and when they do not, it becomes concerning."
Oil has emerged as a major macro economic factor in estimating GDP growth and when prices for crude oil dip too low, it becomes "more of a liability than an asset as the horizon for a balanced market seems further away," Gunzberg said.
Despite the reduction in U.S. production, inventories remain high as OPEC producers have not cut their production and demand is not increasing.
While oil saw a large rally in early October, the market showed signs that investors are pessimistic since bonds are outperforming stock, she said. The last time this occurred was in June 2013 when 10 sectors rose as oil reached highs of $100 per barrel.
"Oil is a rogue performer," Gunzberg said. "This makes you question whether August was isolated and begs the question of whether the stock market's run is over since it is not pulling up equities."
Stock market movements cannot be easily attributed to oil prices and the correlation can fluctuate, said C.J. Brott, founder of Capital Ideas, a registered investment adviser in Dallas.
"Using past statistics, we can assume 85% of stock movement is due to market influence," he said. "If oil is a big part of the S&P 500's market capitalization and it is moving the market that may be the real cause of wider group participation. Correlation may not be causation."
The correlation between oil and the stock market has never been clear cut, according to data from Bespoke Investment Group, a Harrison, N.Y.-based research company. The correlation between S&P 500 and crude oil "moved towards 0 in 2013 and 2014, and then started to trend higher again in 2015," according to a research note. "Over the last 50 trading days as of Aug. 18, the correlation has been roughly 0.50. From 1990 through the end of the mid 2000s bull market, stocks and oil trended sideways in a range between -0.6 and +0.4."
As oil prices shift, it can have a significant impact on all sectors, said Michael Berger, former Raymond James energy analyst and founder of Technical420, a Miami-based company which conducts research on cannabis stocks.
"ETFs possess a diversified portfolio of companies and most have some exposure to energy prices," he said. "It is imperative that investors understand how their portfolio might be impacted by the energy market. When the price of oil rallies, so does the market. The Dow Jones was down around 100 points prior to inventory data on Oct. 26 and a surprise drop in oil inventory wiped away today's losses."