\n McClellan Financial Publications
\n <\/span>
\n <\/figcaption><\/figure>\n<\/p><\/div>\nThe chart from McClellan shows a sharp fall in oil prices between June 2014 and January 2016.<\/p>\n
The boom in U.S. fracking was underway in 2014, boosting oil production, and to keep prices up in the face of that new supply, the Organization of the Petroleum Exporting Countries was trying to cut output, then gave up that fight in the summer of 2014, said McClellan. Oil prices then dropped through January 2016.<\/p>\n
If the 10-year lag-time relationship between oil and stock market continues to work, \u201cas it has worked for more than a century,\u201d that would mean a big decline for the stock market between June 2024 and January 2026 \u2014 the magnitude of which is unknown, he said.<\/p>\n
Stock prices in 2018 echoed the big oil-price crash 10 years earlier, that was part of the collapse of the generalized commodities bubble in 2008, but it was a much more quiet down move in stocks during 2018, said McClellan.<\/p>\n
The big bear market of 1929 to 1932, meanwhile, unfolded \u201con schedule,\u201d and echoed the collapse of the Texas oil boom which started to unfold in 1920, but the stock market fell much harder than oil had suggested, he said.<\/p>\n
So if anyone is going to employ this \u201cfun leading indication relationship\u201d between oil and the stock market, they\u2019ll need to keep a few things in mind, said McClellan.<\/p>\n
The 10-year lag is not always precisely 10.0 years, he said. \u201cSometimes the stock market\u2019s actual turns vary from that ideal lag time by a few months.\u201d<\/p>\n
The magnitudes of crude oil\u2019s movements, meanwhile, do not necessarily get echoed by the stock market, said McClellan. \u201cThis model is more about the timing of the turns than the severity of them.\u201d<\/p>\n
Also, on occasion, an \u201cexogenous event can come along and disrupt things,\u201d he said.<\/p>\n
The March 2020 \u201cCovid Crash\u201d is not something which crude oil appears to have known was coming but after that event, the major stock market averages \u201cworked extra hard to get back on track,\u201d he said. And in 1990 to 1991, when oil prices briefly doubled after Iraq attacked Kuwait, then collapsed back down again to their prior price levels, stocks did not echo that \u201canomalous spike.\u201d<\/p>\n
Even so, based on the leading indication model, McClellan said he\u2019s confident in his expectations that the period between June 2024 and January 2026 is \u201cnot going to be a great time for the stock market, and also not great for whoever wins the November 2024 elections.\u201d<\/p>\n
On that same basis, he said he looks forward to the \u201cbig bull market which this model says is coming between 2026 and 2028.\u201d<\/p>\n
So far this year, U.S. benchmark West Texas Intermediate crude have stuck to a tight trading range, with a less than $10-per-barrel difference between the highs and lows in prices, which could make for a quieter trading period for the domestic stock market roughly 10 years from now. <\/p>\n<\/p><\/div>\n<\/div>\n
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