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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:

Graph showing Apple stock dropping from about €207 to about €203 at the specified time

Microsoft:

Graph showing Microsoft stock dropping from about €387 to about €380 at the specified time

Nvidia:

Graph showing Nvidia stock dropping from about €109 to about €107 at the specified time

Amazon:

Graph showing Amazon stock dropping from about €168 to about €166 at the specified time

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:

Graph showing crude oil price rising from about 67.5 to about 70 at the specified time (no units specified)

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:

Graph showing Shell stock rising from about €29.50 to about €30.10 at the specified time

BP:

Graph showing Shell stock rising from about €4.70 to about €4.80 at the specified time

Exxon Mobil:

Graph showing Exxon Mobil stock rising from about €105 to about €108 at the specified time

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    Why are you assuming that the tech stocks are reacting to oil news, rather than both reacting to the same news? The latter is much more likely.
    – keshlam
    Commented Oct 1 at 19:05
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    Good point. For this specific case, it makes sense to me that tensions in middle-east affect the oil stocks. But why should tensions in middle-east affect US tech stocks?
    – Martin Thoma
    Commented Oct 1 at 19:08
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    Amazon in this sense isn't a tech stock. They do massive logistics of physical products moved by internal combustion vehicles so their outlooks are more directly linked to oil.
    – user3819867
    Commented Oct 3 at 11:31
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    @MartinThoma "it makes sense to me that tensions in middle-east affect the oil stocks" is not the same as "this specific effect on oil stocks is definitely caused by tensions in the middle east". Crashing your car into a wall at high speed tends to kill you, but you can't look at a dead body and infer that they must've died because they crashed their car into a wall. It's perfectly reasonable that the specific effect you're looking at is caused by something else, possibly something that also affects tech stocks.
    – Flater
    Commented Oct 4 at 4:31
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    I've cleaned up the comments to cut them down to those that seem to be clarifying the question - any further comments will be subject to fairly heavy moderation given the number we have already.
    – Ganesh Sittampalam ♦
    Commented Oct 4 at 18:20

6 Answers 6

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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.

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    That said, there are plausible reasons why tech stocks might be sensitive to expected energy prices, and why energy might be linked to oil. Higher power cost => fewer data centres => fewer chips. It's just that these charts don't establish any such link, and certainly not the magnitude of it, or why within tech stocks, Apple and Nvidia would behave the same ;-)
    – Steve Jessop
    Commented Oct 3 at 18:15
  • "Oil certainly has some effect on the economy" heh nice understatement of the week :)
    – Fattie
    Commented Oct 4 at 16:24
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    @SteveJessop that's sort of "simply, wrong" and misleading in the context of this specific QA. The OP has stated a "market theory" with what can only be called "zero evidence". (I feel "1" data point is literally the definition zero evidence; it's "an example of what you mean" with literally "no evidence.".) Your cmt that "there are plausible reasons for ... [insert, any whatsoever random, totally unsupported, market theory seen on the interweb]" is fatuous. (State any theory, and I or anyone can write you innumerable "plausible reasons".) As I say your comment is "misleading" to the OP.
    – Fattie
    Commented Oct 4 at 16:32
  • (Note that people have voted up your comment, which is risible. As I say, it's misleading.)
    – Fattie
    Commented Oct 4 at 16:33
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    I think it's fair to say that a Middle East skirmish would have an effect on both oil prices and tech companies; but it's not fair to say that "rising oil prices negatively affect tech companies". My point is - tech companies are not necessarily reacting to "oil news" - they are more likely both reacting to something else. What that "something else" is cannot be precisely defined either.
    – D Stanley
    Commented Oct 4 at 18:09
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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.

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    Also: general (potential) disturbances in global commerce (which a middle-east escalation would definitely be) just hit tech stocks generally hard, since their products are near worthless without the rest of the economy. I think the R&D centers in Israel aren't the driving factor, but economic uncertainty is
    – Hobbamok
    Commented Oct 2 at 17:12
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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.

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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.

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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.

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    One can instantly write dozens of such arguments, either pro of con, for the theory in question.
    – Fattie
    Commented Oct 4 at 16:39
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    Your chain of causality is highly suspect.
    – D Stanley
    Commented Oct 4 at 18:48
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    It’s a pretty standard trade.
    – Graeme
    Commented Oct 4 at 22:46
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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.

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  • The specific numbers are very much a matter of personal confidence, or lack thereof, in the theory. But it points out that a theory is not evidence, and that one or two data points is, at best, suggestive. Investing on the basis of this theory in its current form would really be investing on a hunch, which isn't much better than investing on the flip of a coin. The universe just isn't that simple. There may be an effect, but even if so it may be deeply buried under other effects. To repeat the obvious, correlation is not causation; increased sales of ice cream do not create hotter weather.
    – keshlam
    Commented Oct 7 at 16:29
  • All true, @keshlam It's hilarious this has been downvoted BTW
    – Fattie
    Commented Oct 7 at 18:02
  • I have quibbles with it -- as I say, I would have preferred a more nuanced assertion -- but I agree with the general statement that jumping to conclusions is usually not wise investing, and that the original poster should have asked whether rather than why.
    – keshlam
    Commented Oct 7 at 21:32

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