The chart below can be downloaded here.
While crude oil recently dipped below $70 per barrel, the decline occurred after oil spent most of the last month with year-over-year price gains over 40%. As an input cost in a wide range of consumer and corporate activity, rapidly rising oil prices can squeeze consumer spending and corporate margins. To gauge the possible market response to these rapid price gains in oil, we looked at the one-year forward returns of the S&P 500 Index for all days since 1986 (teal bars) to just those days where oil was up over 40% for the preceding year (yellow bars). It is an oversimplified analysis, but the 10.3% return spread is large enough to make this dynamic something to watch closely.
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