Stocks Refuse Oil Decline Bait

What’s an investor to think when oil prices fall and stocks don’t move higher? Talk of a growing breakdown in the inverse relationship between stocks and oil prices has bubbled up in recent days but its appearance on Wednesday was front and center, suggesting the troubling proposition, for bulls, that there’s no longer anything magical about oil priced below $105 a barrel. The Dow Jones Industrial Average dropped a point to 12,213, and the the S&P 500 slipped 2 points to 1320, even though crude oil slipped 0.6% to $104.38. One dynamic that did stay true to recent form was the outlying performance by both tech stocks and small-cap equities. The Nasdaq fell 14 points to 2752, while the Russell 2000 Index slipped 0.3%. As most market-watchers know, it’s difficult for any broad rally to take place — even during one market day — without the full participation of financial stocks (and in semiconductors, when talking about the tech sector). Financial names, after a jump on Tuesday, ran out of fuel on Wednesday. The Financial Select Sector SPDR (NYSE: XLF ) exchange-traded fund finished precisely flat at $16.77. Shares of the fund’s second-biggest holding, Bank of America (NYSE: BAC ), lost 0.7% to $14.59. The slide in chip stocks, however, is a little more troubling. The Semiconductor HOLDRs (NYSE: SMH ) ETF fell 3% to hit five-week lows. The Nasdaq is now down 2.8% from its 2011 peak on Feb. 18. Elsewhere, the energy and mining sectors were mostly lower on Wednesday, and herein lies the tie-in with small-caps. With the recent parabolic rise of energy prices — not to mention the recent all-time and 30-year-highs set almost daily by gold and silver prices — investors have been sifting through and bidding up the shares of smaller energy and precious-metal plays, as if the five-month, 30% run-up in shares of Exxon Mobil (NYSE: XOM ) just wasn’t satisfying enough. In the past few trading sessions, we’ve come to the other side of that trade, as the oil-to-$200 trade isn’t the sure thing it was even a week ago. Take Nasdaq and small-cap stock Brigham Exploration (NASDAQ: BEXP ), for example. From Jan. 24 to Feb. 28, the stock jumped 44%. This month, it has dropped 8%. ‘Nuff said?
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