Oil, Markets, and the Inevitable Upside (Probably)

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The market, as it often does, has decided to have a bit of a wobble. It started, as these things frequently do, with unpleasantness in the Middle East. And, rather predictably, the price of oil decided to take a brisk walk upwards. As of this morning – Monday, March 9th, if you’re keeping track of the relentless march of time – Brent crude is hovering around $104 a barrel. That’s a rather significant increase, roughly 47%, from where it was before things… escalated. It’s enough to make a goblin accountant weep, and those fellows are notoriously hard to upset.

This, naturally, has stirred the VIX – the Chicago Board Options Exchange Volatility Index, or, as the more superstitious traders call it, the ‘Fear Gauge’. It’s climbed to 31, which, in market terms, is a bit like a dwarf suddenly discovering a fondness for interpretive dance – unexpected and slightly alarming. It’s about 12 points higher than when the first… disagreements… began. One suspects the VIX is powered by a complex system of levers, pulleys, and the generalized anxieties of fund managers.

The S&P 500, meanwhile, has decided to take a brief holiday downwards, dropping over 3% on investor concerns. The worry, quite reasonably, is that expensive oil will slow down the global economy – potentially tipping it into a recession – and simultaneously push up inflation. Energy costs, you see, are rather vital for most households, and crude oil is, quite inconveniently, a key ingredient in everything from plastics to fertilizer. Slow growth and high inflation – a combination known in the trade as ‘stagflation’ – is generally considered a bad thing for stock portfolios. It’s the sort of situation that makes even the most seasoned alchemist reach for the calming draught.

Stocks and the Peculiar Dance with Rising Oil Prices

However, a curious thing happens when you look at the longer-term data. Ritholtz Wealth Management, those dedicated number-crunchers, compared market performance in years when oil prices went up versus years when they went down. And, rather surprisingly, the market actually performs better in years of rising oil prices. Since 1986, the S&P 500 has returned an average of 13.1% in those years, compared to 11.1% when oil is falling. The explanation, of course, is that rising oil prices often indicate a growing global economy – more factories humming, more flights taking off, more general energy consumption. It’s a bit like a dragon getting hungrier – a sign of prosperity, if you ignore the potential for fire.

Furthermore, if oil prices go up for two days in a row – as they did last week – stocks have historically tended to be higher one month, three months, six months, and even a year later. This isn’t to say that correlation equals causation, of course. The market is a fickle beast, and its motivations are often as mysterious as the workings of a clockwork gnome.

Now, it’s important to acknowledge that the current spike isn’t driven by robust economic growth. It’s largely due to fears of supply disruptions, with shipping through the Strait of Hormuz – a vital artery for global petroleum, handling some 20% of the world’s supply – becoming… problematic. And the general situation is, shall we say, not improving.

But for investors with a longer-term horizon – those who aren’t planning to retire on a desert island next Tuesday – it’s worth remembering that markets have a peculiar habit of recovering from setbacks. Despite occasional wobbles and corrections, they generally trend upwards over time. Unless you need to access your investments in the next year or two, sticking with fundamentally sound, well-managed companies is usually the most sensible course of action. It’s a bit like tending a magical garden – patience and careful cultivation eventually yield rewards. And, as any seasoned wizard will tell you, even the most potent spells require time to mature.

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2026-03-10 18:03