Why is the S&P 500 so resilient? Brent oil prices have breached the $100 level, but the index has only fallen about -7% on a peak-to-trough basis. The apparent divergence has led to a number of Street economists and strategists to call for a deeper pullback based on rising recession risk.
From a top-down macro perspective, here are some key differences between the current surge in oil prices and past stock market behaviour based on commonly cited recent oil spike episodes. Most recently, the 12-Day War saw a brief spike in oil price, but the 52-week rate of change was negative, and the S&P 500 shrugged it off. When Russia invaded Ukraine in February 2022, the 52-week rate of change in oil prices was already elevated. In fact, the real surge in oil occurred about a year prior to the invasion. The S&P 500 was already tracing out a top prior to the onset of the war by breaching its 40-week MA before the invasion. By contrast, the S&P 500 only began a test of its 40 dma last week, three weeks after the onset of hostilities.
While I have some sympathy for the calls of equity market weakness and rising recession risk, here are some other reasons why the S&P 500 has been so resilient.
The full post can be found here.
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