Swings in Oil Have Become the Biggest Threat to Stability in Stocks

(Bloomberg) -- Fluctuations in oil always have a role in setting prices for equities. But among all the various market-derived influences that exist in the world right now, they’re the biggest.

Changes in crude explain more than a fifth of the S&P 500’s volatility, according to an analysis by Evercore ISI. That’s the most of any macro influence the firm tracks, including correlation between stocks, investor sentiment, and the shape of the yield curve.

“Recent price volatility continues to weigh on equity markets leaving oil unusually important to almost all industry group volatility,” Dennis Debusschere, the firm’s head of portfolio strategy, wrote to clients. “The stabilization of oil prices would be a support for the overall equity market and risk-on factors.”

Crude oil surged as much as 35% Wednesday after President Donald Trump said he expects Russia and Saudi Arabia to cut oil production by about 10 million barrels. The S&P 500 extended earlier gains to as much as 2.5% and the VIX fell to the lowest level in three weeks.

Oil prices and equities have both been deeply affected by the spreading coronavirus, shuttering economies and lowering demand for crude. WTI crude oil plummeted 66% in the first quarter, the worst on record, while the S&P 500 suffered its worst quarter since 2009.

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