By Alex Lawler, Anna Hirtenstein and Amanda Cooper
LONDON (Reuters) – A positive correlation between global oil benchmark Brent crude and U.S. equities has reemerged in 2025, reflecting concern about the slowing economy and the impact of U.S. President Donald Trump’s trade wars.
Asset classes moving in tandem presents a conundrum for money managers, challenging ideas like commodities are a good way to diversify portfolios as they are less likely to fall at the same time as stocks. The current environment with widespread growth fears has spurred investors to seek new strategies.
Since Trump took office on January 20, crude and U.S. stocks have moved in lockstep, as concern about the outlook for the global economy and growth have rattled sentiment across markets.
The one-month correlation between the two – a metric that reflects how much two assets tend to follow one another, with -1.0 reflecting no correlation at all and 1.0 reflecting a near-perfect correlation – rose to as much as 0.9 in March.
“The oil price is moving today not because of inflation, but because of growth and that’s why oil and equities are becoming more correlated,” said Shaniel Ramjee, co-head of multi-asset funds at Pictet Asset Management in London.
“The market is more worried about growth than anything. Tariffs can increase short-term inflation but it’s really the impact on growth that’s driving this correlation.”
On Wednesday, Trump said he would temporarily lower the duties he had just imposed on dozens of countries while further ramping up pressure on China, sending stocks and oil higher. Oil resumed falling on Thursday ahead of the U.S. stock market open.
“Oil and equities tend to highly correlate when concerns about economic slowdown are rising,” said Tamas Varga of oil broker PVM.
“Demand prospects, together with the outlook for equities, are at the whim of the chaotic policymaking of the U.S. administration, which is presently negative.”
A positive correlation between oil and equities is not that rare, however. Brent and the S&P500 were strongly correlated for most of the June-August period last year.
Tim Evans of advisory firm Evans on Energy said trading the correlation presented at least two difficulties – uncertainty over how long it will last and whether it’s any easier to forecast direction of the S&P 500 or the oil price.
“Those with a confident view of the S&P 500 may be better off trading the index than trading oil,” he said.
CUTTING OIL INVESTMENT
Some fund managers have cut back on investments in crude futures, instead preferring other commodities such as gold. A benchmark gold futures contract hit a record high last week.
“We don’t have a positive view on oil. Tariffs are definitely impacting the demand picture,” said Luc Filip, head of investments at SYZ Private Banking in Geneva.
Antonio Cavarero, head of investments at Generali Asset Management, agrees.
“Oil is more exposed to the possible softening of the economic cycle,” Cavarero said. “In this moment you want to be in corners of the market that are less exposed to unpredictable decisions by policymakers.”
Ramjee of Pictet Asset Management said the oil and stocks correlation could weaken should the U.S. administration stop short of its more extreme tariff threats.
“If the tariffs aren’t that impactful or more scaled down, we will likely see a decoupling,” he said. “People will go for oil to take advantage of that improved growth picture, but we’re not seeing this yet, there’s still the possibility for a negative surprise on growth.”
For now, the funds he manages have built up a large position in gold and gold mining stocks to diversify away from more correlated markets. He’s also trading less and putting on smaller positions because of the volatility in markets.
(Reporting by Alex Lawler, Anna Hirtenstein and Amanda Cooper, additional reporting by Shariq Khan, editing by Simon Webb and David Evans)
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