On February 22nd, crude WTI closed at year-to-date high of $41.45/bbl. Yesterday, less than two weeks later, it closed at $35.55/bbl. In rather quiet and uneventful fashion crude has shed nearly $6.00 a barrel or 14.23%. Truthfully, the loosely elastic price resistance that materialized at $40/bbl and higher recently was not at all surprising as I have called for precisely that price action for well over five weeks. However, there is a component of that trade that has been somewhat unexpected. Crude’s most recent reversal or retreat has not been reflected in equity prices.

For well over a year equity prices have been battered by a variety of factors from China’s equity market volatility to anemic global demand and uncertainty over the interest rate landscape here in the United States. An additional factor that has played a significant role in the challenges faced by US equities over the past year has been crude oil’s unceremonious collapse. All of these themes are related but interestingly, one by one, they all seem to have largely decoupled from US equity market pricing. Crude is the latest case in point.

Over the past year, nearly any volatility that has surfaced in equity trading has been tied either directly or indirectly to one of the themes mentioned, with crude at the top of that list. However, as crude has quietly retreated recently, equity markets have managed to post incremental gains. All three major equity market indices remain within a percentage point of their year-to-date highs despite crude’s 14% pullback. It seems as though crude’s reversal is not negatively impacting equities for the for first time in well over a year. That is worth taking note of.

In the event that crude and equities have actually in fact decoupled and with the interest rate landscape having taken on a decidedly more dovish tone in the past week, equity pricing and any resultant volatility that may arise in coming weeks will most likely be tied to earnings. If we see some weakness in equity markets, which I am calling for, crude will finally not be the culprit, if it remains above $34/bbl.