U.S. oil is breaking out as Iran war continues. A look at how past peaks have affected stocks
WTI crude oil has extended its steep upmove amid renewed geopolitical uncertainty, which has investors on edge. We revisited previous shocks in the price of crude oil and reviewed the subsequent performance of the S & P 500 Index (SPX) . Specifically, we examined the last four major peaks to get a sense of the impact on the equity market. To frame the recent upmove, we share a monthly bar chart of WTI crude oil, which flashed a monthly MACD buy signal in February, marking the culmination of an extended downtrend off the 2022 highs. The signal supports a continuation higher in crude oil in the coming months. While the current geopolitical backdrop may produce near-term peak levels that do not hold, the technical setup suggests WTI crude oil is in the early stages of an up-cycle that could persist for an extended period. Historically, crude oil up-cycles have often lined up with weaker tapes for the equity market. In most cases, the SPX has struggled to sustain upside momentum following major peaks in crude oil and has instead moved into corrective periods or bear market cycles. The most recent example came in March 2022, which may be the closest comparison to the current environment. Following that peak in WTI crude oil, the major indices remained under pressure through much of the year. Other examples show that the equity response is not uniform, conditions generally become more difficult after crude oil price shocks. After the October 2018 peak, the SPX saw a sharp correction before resuming its secular uptrend. In 2011, the response was more of a prolonged trading range. In 2008, crude oil peaked just as the major indices were beginning a severe bear market cycle. Crude oil peaks do not cause every equity drawdown, but history shows they have often coincided with the advent of tougher market conditions. With WTI crude oil having broken out, this does not suggest stocks will break down, but that the SPX is likely to see more choppy, corrective action in the months ahead. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer. Fairlead Strategies Disclaimer: This communication has been prepared by Fairlead Strategies LLC (“Fairlead Strategies”) for informational purposes only. This material is for illustration and discussion purposes and not intended to be, nor construed as, financial, legal, tax or investment advice. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, reflecting the author’s current expectations, and is subject to revision by the author, though the author is under no obligation to do so. This material may contain commentary on broad-based indices, market conditions, different types of securities, and cryptocurrencies, using the discipline of technical analysis, which evaluates the demand and supply based on market pricing. The views expressed herein are solely those of the author. This material should not be construed as a recommendation, or advice or an offer or solicitation with respect to the purchase or sale of any investment. The information is not intended to provide a basis on which you could make an investment decision on any particular security or its issuer. This document is intended for CNBC Pro subscribers only and is not for distribution to the general public. Certain information has been provided by and/or is based on third party sources and, although such information is believed to be reliable, no representation is made with respect to the accuracy, completeness, or timeliness of such information. This information may be subject to change without notice. Fairlead Strategies undertakes no obligation to maintain or update this material based on subsequent information and events or to provide you with any additional or supplemental information or any update to or correction of the information contained herein. Fairlead Strategies, its officers, employees, affiliates and partners shall not be liable to any person in any way whatsoever for any losses, costs, or claims for your reliance on this material. Nothing herein is, or shall be relied on as, a promise or representation as to future performance. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Opinions expressed in this material may differ or be contrary to opinions expressed, or actions taken, by Fairlead Strategies or its affiliates, or their respective officers, directors, or employees. In addition, any opinions and assumptions expressed herein are made as of the date of this communication and are subject to change and/or withdrawal without notice. Fairlead Strategies or its affiliates may have positions in financial instruments mentioned, may have acquired such positions at prices no longer available, and may have interests different from or adverse to your interests or inconsistent with the advice herein. Any investments made are made under the same terms as nonaffiliated investors and do not constitute a controlling interest. No liability is accepted by Fairlead Strategies, its officers, employees, affiliates, or partners for any losses that may arise from any use of the information contained herein. Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and interest. Any prices or levels shown are either historical or purely indicative. This material does not take into account the particular investment objectives or financial circumstances, objectives or needs of any specific investor, and are not intended as recommendations of particular securities, investment products, or other financial products or strategies to particular clients. Securities, investment products, other financial products or strategies discussed herein may not be suitable for all investors. The recipient of this information must make its own independent decisions regarding any securities, investment products or other financial products mentioned herein. The material should not be provided to any person in a jurisdiction where its provision or use would be contrary to local laws, rules, or regulations. This material is not to be reproduced or redistributed absent the written consent of Fairlead Strategies.
<
