Worst time to be in stocks? History suggests 90% crude surge drags S&P 500 into losses over 6 quarters

A continued surge in crude oil prices amid escalating Iran tensions could spell trouble for US equities, with historical data suggesting that such rallies are often followed by weak returns in the S&P 500. Apurva Sheth, Head of Market Perspectives & Research at Samco Securities, said a 90% or more rally in WTI crude over a 12-month period has consistently acted as a macro warning signal for equity markets.

"Across the last 11 such instances since 1987, the S&P 500 delivered negative average forward returns across every major time frame," Sheth said. According to the analysis, the index has historically declined 3.5% over the next six months, 7.3% over one year, 8.3% over 18 months and 7.2% over two years following such oil spikes.

The probability of losses also rises sharply over time. The S&P 500 was negative in 5 out of 11 cases after six months, but this increased to 9 out of 11 cases after one year and 10 out of 11 cases after 18 months, indicating that the impact tends to play out with a lag.


The current setup mirrors past instances. Brent crude has already jumped more than 60% in a matter of days, rising from $72.48 on February 27 to $119.50 on March 9, following heightened geopolitical tensions.

The rally has been driven by fears around supply disruption after fresh threats from the US over Iran and the Strait of Hormuz. The US President warned of severe military action if Iran fails to reopen the critical shipping route, raising concerns about a potential escalation that could disrupt global oil supply.

Sheth said such sharp spikes in crude act as a "tax on economic growth," as higher oil prices push up transportation and manufacturing costs, fuel inflation expectations and increase bond yields. This, in turn, puts pressure on corporate margins and consumer spending.

"When oil doubles, earnings expectations usually don’t. That mismatch often leads to multiple compression in US equities," he said.

The analysis suggests that while the immediate market reaction may not always be sharp, the negative impact becomes more visible over the next 12 months as higher costs feed into the broader economy. This has particular implications for technology-heavy indices and global portfolios, which are sensitive to interest rates and valuation changes.

With crude now approaching levels seen during past supply shocks, investors, especially in the US may need to factor in the possibility of weaker equity returns in the coming quarters. This could also be true for India. While markets have so far remained volatile rather than decisively weak, historical trends indicate that sustained high oil prices tend to weigh on equities over time, especially when driven by geopolitical disruptions rather than demand recovery.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)