What Do Oil Prices Tell Us About The Future Price Of Stocks?

Hulbert oil vs stocksWhat do oil prices tell us about the future price of stocks?

Here’s the short answer: Not much.

Stock prices and oil prices  have been moving in tandem recently. Oil tanks, so do stocks. Oil rallies, the stock market soars.

The two may be BFFs right now, but what do oil prices really say about stocks over the long haul?

Market analyst Mark Hulbert looked at the long-term relationship between oil prices and stocks to measure how well oil can forecast future market movements. And what he found is interesting. (See the chart prepared by Hulbert Financial Digest and published on Marketwatch).

Over some time periods, oil and stocks are indeed positively correlated, meaning they move in tandem.

But guess what? During other time periods, they are negatively correlated, meaning that when oil moves down, stocks head in the opposite direction.

“In other words, rising oil prices are good for stocks — unless they’re not,” writes Hulbert.

Here’s the takeaway. Market timing strategies based on the price of oil just don’t work, says Hulbert.

Oil may be way down right now, but that doesn’t tell you anything about where stocks are headed.

Hulbert should know. He’s made a name for himself tracking the advice of more than 160 financial newsletters and rating how well they pick winning investment strategies.


About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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