Why are crude oil and equity markets correlated? It’s the global economy stupid...
​It is rather difficult to put into perspective that a rising oil price environment tends to positively impact equity markets and that lower oil prices would lead equity markets to decline, as it is clearly counterintuitive. In theory, lower oil prices should have a positive effect on the economy, as household disposable income rises, accommodating an increase in consumption, while companies that are heavy consumers of oil face lower input costs and thus improved profit margins and, ultimately, better earnings. Putting theory aside, the correlation between crude oil and equity prices has not only turned positive since the global financial crisis, but stands at very high levels, currently.
The report sheds light on the high correlation between crude oil and equity prices.
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