May

8

Speaking of commodity spillover, I'd be interested to know the historical effect on near-term stock prices when commodities hit a "high" and then decline.

Many thanks,

Dan

Russ Sears writes: 

One data point that may be applicable is Silver Thursday

Mar 27 1980 S&P closed 98.2
next day 100.68
5 trading days 102.25
21 days (April 28) 105.64
June 27 116.00

Looks pretty bullish.

Tim Hesslesweet adds:

Spot energy.

Nymex energy futures.

Kim Zussman writes: 

Using Tim's linked data for Cushing WTI spot crude weekly prices, constructed the attached comparison plot of log (spot crude) and log (sp500). Log (spx) was scaled -1 log unit (divided by 10) in order to readily compare the two.

The chart shows a similar gain for crude and SPX over the interval, 1/87-5/11. Crude remained relatively flat through the 90's while stocks gained. Oil bottomed in 1998, and from this bottom to the peak in 5/08 gained about 10X.

IQ1 marks the 1st Iraq war, with an expected spike in crude price and drop in stocks. Both stocks and oil were near many-year highs in 9/00, and both declined together until a few months after 9/11, when stocks continued to drop but crude rose. At the outset of IQ2, oil spiked and stocks sagged - like the prior Iraq war. From this point SPX rose consistently, and after a few months oil followed.

Stocks hit a many year high in 9/07 before turning down, and crude did the same 8 months later in 5/08. Subsequently oil bottomed faster - in 12/08 - and stocks in 3/09.

For crude and SPX there does not seem to be a clear relation between peaks and valleys, though there was a contemporaneous inverse relationship with two wars in the middle East.


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