By Bernice Napach
It turns out that oil prices have had a 70% correlation with stock prices since December 1985, according to Sam Stovall, U.S. equity strategist at S&P Capital IQ. So when oil prices fall, seven out of 10 times so do stock prices and vice versa.
Stocks ended Monday's session down 100 points on the Dow at 17,181. That followed the market's worst week in three years, as U.S. oil prices fell further to $55.91 a barrel.
"Whenever oil prices are going down it's thought because a recession is feared, but the right answer depends on whether oil prices are falling because of a reduction in demand or an increase in supply," says Stovall.
On that question stock strategists are mixed.
"Low oil prices of this magnitude suggest there is something bad going on in the global economy...namely a fear of deflation," says Lincoln Ellis, managing director at Westwood Capital. "Then, the only way companies can make money is not by growing top line revenues, but through cutting overhead, personnel etc."
The International Energy Agency on Friday cut its 2015 forecast for global oil demand by 20% to 900,000 barrels a day. That revision was primarily driven by falling demand from Russia and other oil-exporting countries like Nigeria, where economies are hurting because of the slide in oil prices.