What's Up With Oil and the S&P 500?

If you have been observing commodity and equity markets as of late you have probably noticed the sharp rise in major stock indices such as the S&P 500 and a drop in oil prices.  Barry Ritholtz has dubbed this activity as the New Great Rotation - out of commodities (a liquid asset) and into bonds (safe) and equities (yield).

The Brent-WTI spread is at its two-year bottom.

Brent (red) and WTI  (blue) oil prices; Brent-WTI spread (green).

And the S&P 500 is going up as oil is going down.

WTI (blue; left) and Brent (red; left) oil prices; S&P 500 stock price index (black; right).

Factors to consider for the S&P 500's recent movement: dividend reinvestment, shrinking Federal deficit (see below), Euro recession, China slow-down, and possibly Japan's inflation push.

Factors to consider for oil's recent movement: Euro recession, China slow-down, increase in US oil production, decrease in US liquid fuel consumption, and perhaps anticipation of a quota increases at the upcoming May 31 OPEC meeting.

The Federal deficit is contracting, so perhaps (as mentioned) the decrease in newly issued debt at low interest rates is pushing money into stocks.  However, I still do not see evidence that the recent push in the stock markets is coming from mom & pop (retail) investors, though I am not discounting the claim.

Federal deficit as percent GDP (blue; left) and the real S&P 500 (red; right).

So why might the Federal deficit be contracting?

Federal debt (blue; left) and the unemployment rate (red; right).