A punishing rout in the oil market could portend a healthy bounce for stocks and crude futures if historical trends hold.
Brent and U.S. crude futures have recently tumbled more than $20 a barrel from four-year highs, plunging into a bear market over the course of six weeks. The pullback dovetailed with a broader sell-off in markets, a surge in global oil supplies and darkening forecasts for demand.
But investment firm Jefferies says there may be a silver lining to the clouds that have descended over the oil market.
“Severe one month declines in the price of oil has not presaged market weakness, quite the contrary, actually,” the firm wrote in a research note Sunday.
“Historically, at least, rapid declines in the price of oil have tended to be bullish for the S&P even if it’s often easy to spin oil price declines as a negative.”
Jefferies researched what happens to stocks and crude futures after a move of two standard deviations to the downside over the course of a month for oil prices.
Going back to 1990, and excluding the global financial crisis, the S&P 500 typically posts a 2.3 percent gain in the month after a similar drop in the cost of crude on the scale the market just witnessed. Over the next three months, the S&P historically rises 5.4 percent.
West Texas Intermediate crude, the benchmark for U.S. oil prices, typically recovers 5.5 percent over the next month. WTI logs a 7.3 percent jump in the three proceeding months.
Source: CNBC
