The stock market actually doesn't care as much about oil prices as you think

MW The stock market actually doesn't care as much about oil prices as you think

By Mark Hulbert

Predicting the S&P 500's direction based on oil moves is an empty bet

Fundstrat's Tom Lee even argues that higher oil prices might actually provide a boost to the U.S. economy.

Are rising oil prices good or bad for the economy and stock market?

Few are even asking this question, since it seems obvious that higher oil prices (CL00) (CL.1) are unequivocally bad for stocks. Ever since the Iran conflict began more than two weeks ago, the financial media have attributed market rallies to falling oil prices, and vice versa.

But what seems obviously true isn't necessarily so. A few brave contrarians, such as Tom Lee, head of research at Fundstrat, argue that higher oil prices might actually provide a boost to the U.S. economy. Last week, President Donald Trump switched from expressing concern about high oil prices to pointing out that as a net exporter of oil, the U.S. actually benefits from higher prices.

History offers insight. Look at the chart above, which measures the trailing five-year correlation of monthly changes in the S&P 500 SPX and crude oil. Notice that the correlation is highly unstable, with the correlation coefficient ranging from above 50% to below 50%. Given this unstable correlation, it is impossible to say definitively that rising oil prices are good or bad for the U.S. economy in general, and the stock market in particular.

This conclusion wouldn't be the end of the story if there were a plausible explanation for why the correlation changes over time. Might such an explanation exist in the U.S. recently becoming a net oil exporter?

Not so. According to the U.S. Energy Information Administration, the U.S. became a net exporter of oil in September 2019. If that could explain changes in the stocks-oil correlation, we would expect to see a gradually increasing correlation in the years prior to 2019 as the U.S. was getting closer and closer to becoming a net exporter.

We would further expect that after September 2019 there would be a consistently high correlation. But neither of these is the case. Far from exhibiting a steady uptrend over the 15 years prior to 2019, the correlation fluctuated widely. And since 2019, the correlation has been steadily declining. Its latest value is indistinguishable from zero.

Even if there were a predictable stocks-oil correlation, it would still be nearly impossible to translate it into a profitable strategy. Currently you would first need to predict how long the Iran conflict will continue and how oil prices might react to stopgap measures such as releasing oil from the U.S. Strategic Petroleum Reserve. None of those predictions is easy or straightforward.

The bottom line: You shouldn't base your equity allocation on predictions for oil prices. It's hard enough trying to forecast how long the conflict with Iran will last or how long the oil market will be disrupted. It's even more difficult to predict how the stock market will react.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Trump has 15 days to end the Iran war or markets face a brutal April repricing - from oil to the S&P 500

Also read: The U.S. dollar and crypto are both benefiting from the Iran crisis, in an unusual move

-Mark Hulbert

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March 21, 2026 14:48 ET (18:48 GMT)

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