Oil has driven both stocks and long-term Treasury bonds lower together since the U.S.-Iran war began in late February, a shift a Nomura strategist calls the defining force in today's markets. The rolling correlation between crude and the S&P 500 has swung from roughly neutral to strongly negative, and Treasurys are showing the same pattern.
Oil-stock correlation turns sharply negative
Before the war, oil and the S&P 500 moved largely independently of each other. The rolling 63-day correlation between West Texas Intermediate crude and the S&P 500 stood at just 0.04 on Feb. 27, according to Dow Jones Market Data. It fell to minus 0.35 by the end of March, then reached minus 0.48 by late April — meaning oil price gains have increasingly coincided with stock declines.
Treasurys show the same shift
Long-term government debt tells a similar story. The correlation between crude and the iShares 20+ Year Treasury Bond ETF fell to minus 0.28 by the end of April from minus 0.15 on Feb. 27. It reached minus 0.55 by Tuesday morning.
According to MarketWatch, Charlie McElligott, cross-asset macro strategist at Nomura Securities International, said crude oil and energy is "the straw that stirs the drink" of the current global macro risk regime.
Normally, rising oil can support stocks by signaling stronger economic demand, which is largely why the correlation stayed positive through 2025. But the oil supply shock from the Middle East conflict is now pushing up transportation and production costs, while central banks fight to keep interest rates higher for longer. Higher rates raise borrowing costs for mortgages, car loans and credit cards, and can squeeze corporate margins.
Kathleen Brooks, research director at XTB, said Treasury yields are now driven less by safe-haven flows and more by inflation expectations, with the correlation between yields and oil at its highest level in seven years.
Yields climb as indices diverge
The 10-year Treasury yield rose two basis points Tuesday to 5.040%, its highest intraday level since July 19, 2007, while the 30-year Treasury rate also climbed two basis points to 5.369%.
Aside from a tech selloff triggered by calls from Anthropic CEO Dario Amodei and other executives to slow artificial-intelligence development, the Dow Jones Industrial Average was off just 0.4% so far this quarter, while the S&P 500 has risen 1.2% and the Nasdaq Composite was down 0.9%.
Source: MarketWatch
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