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Correlating Prices?

Three and half years ago, the market panicked about oil prices surging past 130 a barrel. Market watched the weekly crude inventory release like there was no tomorrow while the politicians blamed everyone from speculators to China for it. Wednesday became the decisive day for the rest of the week. Recent trend is starting to look like it’s 2008 all over again with oil back on radar, and the fear of $140 oil on the table. Market price and oil have been moving in opposite direction lately, and this is surprisingly not the normal trend. Since the low of 2009 (which we are officially 2 years since the lowest in S&P), S&P and Oil have been slowly trending up in lock step. Thank you Libya….

So what now? Historically, after a significant oil surge, the US economy tends to go into a recession. One of the best comments I’ve heard this week: “If we see $200 oil by year end, then we are not going into a double dip, we’re going to see the end of the business cycle; a whole new recession”. 

Market Reaction

Let's look at the past 20 Years:

Are both oil and US equity prices becoming more correlated for the past 3 years? 
One explanation is that the source of S&P500's revenue and the marginal demand growth both come from the same place: Emerging Markets.