The S&P 500 has barely noticed the oil shock

Spot Brent rose 48% between 25 August and 15 September. Over the same days, the S&P 500 fell 1.2%, from 7,677 to 7,586. By 21 September it was back at 7,765. It closed at 7,684 on 28 September, 1.5% below its 2026 high of 7,799 on 13 August.

The VIX, the market’s price of expected volatility, closed no higher than 17.84 between 1 and 22 September. That is a calm reading for a month with an oil shock and the Fed’s first rate increase since 2023.

A different reaction from the spring

The first oil shock of the year hit much harder. Spot Brent went from $71.32 a barrel on 27 February to $138.21 on 7 April, a rise of 94%. The S&P 500 fell to 6,344 on 30 March, 7.8% below its close on 27 February and 9.1% below its January high. The VIX reached 31.05 on 27 March, its highest close of the year.

Then the index recovered. From the March low to the August high it rose 23%. Oil helped: spot Brent fell as low as $68.53 on 2 July, below its price before the war.

An older case shows how unusual September was. Between 3 January and 8 March 2022, Brent rose 70%, from $78.25 to $133.18. The S&P 500 fell 13% over the same days. This month a rise of almost half in the oil price moved the index barely at all.

Why investors are calm

One reason is experience. The spring spike reversed in full within three months, and the shares that fell with it recovered. Investors may have treated the September jump as another spike that will pass. It has already eased. Spot Brent was $114.89 on 22 September, 12% below its peak, and the VIX closed that day at 14.21.

The second reason is what the index holds. The largest US companies sell software, chips and online services, and they use little oil. The Nasdaq Composite, which is heavier in technology, closed at 26,820 on 28 September, 2.6% above its close on 25 August.

The third is the economy. The Fed raised rates because of inflation, not because growth was weak. Its statement said that “Economic activity is expanding at a solid pace” and that “domestic spending has been resilient”. Companies can pass on higher costs more easily when their customers keep spending.

What higher rates mean for shares

The calm is harder to explain on the side of interest rates. The 10-year real yield, the return on inflation-protected Treasury bonds, rose from 2.32% on 25 August to 2.85% on 24 September. A higher real yield raises the rate used to discount future profits. It usually hurts expensive shares most, because more of their value lies in profits far in the future.

That has not happened yet. The index is priced as if the energy shock stays short and higher rates do not slow the economy much. Both could be true. But the bond market is already showing more strain: high-yield spreads are the widest since April, and the lowest-rated borrowers have been under pressure since the spring.

What would change it

If oil stays high long enough to reach company earnings, that calm is what is at risk. The same is true if real yields keep rising. For now, investors are betting on a short shock and a strong economy.

The next test is the August report on personal income and outlays, due on 30 September, which shows both inflation and consumer spending. The Fed meets next on 27 and 28 October. A second increase would test how much more the index can take.