The S&P 500 Energy sector moved above its long-term 200-day moving average today on the back of another sharp move higher for crude oil prices.  It was the Energy sector’s first close above its 200-DMA since October 10th, 2018.  As shown below, while the sector has rallied significantly off of its December 2018 low, it’s still right in the middle of the range it has been in over the last two years.

Oil has rallied nearly 60% off of its December low, and as shown below, the commodity eclipsed its 200-DMA a few weeks ago well ahead of the Energy sector.

Below is a long-term look at the ratio of Energy stocks to oil.  When the line is rising, Energy stocks are outperforming oil.  When the line is falling, oil is outperforming Energy stocks.

You can see in the chart that there have been two big periods of strength for Energy stocks (versus oil) over the last 30 years.  One period was during the late 1990s when equities in general were on fire, and the other was from 2014 through early 2016 when both oil and Energy stocks were in free-fall (oil fell a lot more).  Since oil bottomed in the mid-$20s three years ago, we’ve seen the commodity far outpace Energy stocks.  Oil is up 148% off of its lows while Energy stocks are up just 30%.

At any rate, while the ratio is certainly volatile, the current level of 7.7 is just a notch above the long-term average ratio of 7.29.

In terms of the day-to-day fluctuations for oil prices and Energy stocks, over the last 30 years we’ve seen the two become more and more correlated.  Below is a chart showing the rolling 200-trading day correlation between their daily price movements (%).  During the 1990s, the correlation between the two ranged from 0 to 0.5 with even a couple dips into negative territory.  Since 2003, though, we’ve seen the correlation increase more and more over time, and it actually hasn’t dipped below 0.50 in a few years now.

Start a two-week free trial to Bespoke Institutional to unlock all that Bespoke’s research has to offer!

Print Friendly, PDF & Email