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Geopolitical Risk · Market Volatility · Oil Prices · S&P 500
A recent 12% surge in oil prices, triggered by escalating Middle East tensions, marks the first such weekly double-digit gain in nearly three years, historically signaling short-term underperformance for the S&P 500 Index over the next six months.
Rocky White, Senior Quantitative Analyst at Schaeffer's Research, analyzed 52 instances of weekly double-digit oil gains since 1985. While general oil spikes often precede longer-term S&P 500 outperformance, averaging over 20% in one year with 90% positive returns, the current situation falls into a specific category: the first weekly oil spike of at least 10% in over a year.
In these 15 historical instances, the S&P 500 significantly underperforms, averaging only a 1.82% return over six months, with only 60% of returns positive, compared to a typical 5% return and 74% positive. Oil itself typically pulls back in the week following such a spike, averaging a 3.73% loss, and a 1.09% loss over the next month, indicating increased volatility.
This suggests investors should anticipate near-term market weakness despite the historical long-term upside associated with general oil spikes.
