Why do tech stocks seem to react to oil news?

Question

I have seen this pattern a couple of times already and I'm uncertain if I'm seeing a non-existing pattern.

Today (2024-10-01, ~15:05 German local time) several major US stocks dropped:

Apple:

Microsoft:

Nvidia:

Amazon:

One part of the news: S&P 500 falls, Nasdaq drops 1% as oil spikes on escalating Middle East tensions

WTI crude oil became more expensive:

But why should an increase in the oil price correlate with e.g. Nvidia stock prices?

Can that be just big investors shifting their money, e.g. to:

Shell:

BP:

Exxon Mobil:

Answer 1

Correlation is not Causation. It's not correct to infer that "oil prices directly affect tech companies" because of these patterns. There could be several reasons for investors to move away from tech stocks:

• There is also a pending US dock workers strike that may severely affect the ability for the US to import goods, which would likely affect cell phone and microchip sales.
• Or it could be that investors are shifting from tech stocks to oil stocks, possibly because they think tech stocks are overvalued
• Or it could be fear in the market overall (except for oil stocks)

I'd bet you could find many other non-tech stocks that had similar changes today.

UPDATE

Supporting the incomplete correlation, oil is up another 5% today but the NASDAQ is roughly flat. Oil certainly has some effect on the economy in general (of which tech stocks are a part) but it is likely not a huge factor for tech companies specifically.

Answer 2

The timeline matches the Iranian announcement of its intent to attack Israel. The attack materialized several hours later with an anticipation of the Israeli retaliation against Iran.

A lot of tech companies have significant R&D centers in Israel. Them being bombed might lead to delays, disruptions, and additional costs. Essentially the risk is the same as for the oil industry (which is directly affected by the opposite reaction).

Regardless, any event with a significant destabilization potential leads to the broad market downward trend regardless of any individual company's direct impact.

Answer 3

This is a "Why did people buy or sell?" question, not "how do these things affect each other?" question, simply because there has not been sufficient time for any actual economic effect to occur. The answer to why millions of people make the decisions they do in the stock market each day is often written about, but never based on data from the individuals who bought or sold.

Answer 4

To answer the question stated, "Why do tech stocks seem to react to oil news?".

The general reason is that humans, analysed as classification algorithms, have low precision when it comes to detecting patterns. That is to say, lots of false positives. So, the reason that tech stocks seem to react to oil news, is that you were looking for relations and you accidentally cherry-picked some data. A less proximate possible reason is that, averaged over the past few million years, it's much more costly for apes to miss a lion in the long grass than it is to imagine a lion that isn't there. So, given that we can't be 100% accurate, humans benefited from imagining a lot of lions that turn out to be nothing (and, one assumes, even those of us who don't live in lion-infested grass continue to benefit from high recall in other pattern-detection tasks, even at the cost of low precision).

Now, it may or may not be the case that tech stocks actually do react to oil news. That is barely relevant to whether they seemed to, to you, on a particular afternoon in October! To get an answer more specific to you, you could look into questions like, "does this hypothesis appeal to me because it has a plausible mechanism that could support it?", "does this appeal to me because it confirms some other belief I have (confirmation bias), or some other cognitive bias?", "why did I even hypothesise that tech stocks react to oil news, whereas oil news reacting to tech stocks is absurd -- that is what's the framework in which I'm making these hypotheses?".

But I'm just having a bit of fun, since I expect the question you want answered is, "Do tech stocks react to oil news?". I don't know the answer to that.

Answer 5

Higher oil prices mean higher inflation, which means higher interest rates. Higher rates are bad for tech (and any high growth) stocks because it means future value is discounted at a higher rate - and those stocks have a much higher future value than present value.

Answer 6

You have presented a market theory.

You would have to present - let's say - at least 100 examples of your theory happening for it to reach the level of it being worth you thinking about.

(You'd need decades of data, ie 10s of thousands of examples, to trade on it.)

Note that

• anyone (including yourself) can instantly write you a few dozen plausible reasons pro or con your market theory. This is of no consequence either way. You would have to present - let's say - at least 100 examples of your theory happening for it to reach the level of it being worth you thinking about.

• anyone (including yourself) can instantly find you another one or two examples pro or con your market theory. This is of no consequence either way. You would have to present - let's say - at least 100 examples of your theory happening for it to reach the level of it being worth you thinking about.