According to the mainstream experts, crude oil and U.S. stocks have pulled a major "Star Wars." Meaning: As did Luke Skywalker and Darth Vader, those two financial markets have switched from mortal enemies into eternal allies.
Case in point: Contrast the following news items from mid-2007 with those of recent days:
August-November 2007:
- “Oil Worries Weigh On US Stocks.” (The Street.com)
- "The oil space has become more and more a drag on sentiment.” (Reuters)
- "If the price of oil continues to be above current levels, the stock market is going to continue to go down." (DJ MarketWatch)
Since January 10, 2009:
- "US Stocks Erase Gains As Oil Slide Adds To Woes." (CNN Money)
- "Crude [Rise] Keeping Street Afloat" (DJ MarketWatch)
- "Falling Oil Prices Helped to Fuel Pessimism" (AP)
As for an explanation, the usual suspects shine this familiar light (saber) on the matter: A slowing global economy has reduced the demand for all asset classes, from equities to energy alike.
If that were true, then stock AND oil prices would be locked in step since the global meltdown was declared in 2007. This is absolutely NOT the case.
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On Wednesday, January 14, my colleagues designed the following chart of the Dow Jones Industrial Average versus Crude Oil since January 2007.
As you can see, the relationship is anything but synchronized:
January 2007 to October 2007: Crude oil surged from below $60 per barrel to nearly $80 per barrel; the DJIA also soared to an all-time record high of 14,279.
October 2007 to July 2008: Crude oil continued to rocket above $100 per barrel to a new, lifetime high, while the Dow plummeted more than 20% in a precipitous decline.
July 2008 to November 2008: Nine months after stocks peaked, crude finally joined the Dow on the downside.
November 21, 2008 to early January: Crude endures an uninterrupted losing streak to a five-year low, while the Dow reclaims the upside in a 19% rally.
And now: Oil is bouncing around like a Mexican jumping bean; while the Dow remains fixed in a five-day losing streak to a one-month low.
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