Energy shares look for next spark as investors eye recovering economy


Investors betting on U.S. energy shares have enjoyed a blistering rally, as the sector leads a move into value and economically sensitive stocks that has gripped the equity market. How much further that run continues could hinge on the success of the economic recovery, supply dynamics in oil markets and whether companies can stay disciplined on spending.

The near doubling in the price of crude has helped make shares of oil and gas companies – for years a losing bet – one of the best performing areas of the market, with outsized gains in the stocks of companies such as oil major Exxon Mobil Corp and Diamondback Energy Inc, which have surged 89% and 231%, respectively, since early November.

With a gain of over 80% in that time, the S&P 500 energy sector is back to levels last seen in February 2020, when the stock market began its plunge as the COVID-19 outbreak took its toll on the economy.

“Shares are being bid up because there are expectations for greater demand,” said Michael Arone, chief investment strategist for State Street Global Advisors. “We need to see the follow-through.”

The outlook for energy shares is at the center of a number of market themes, including how long the economic “reopening” trade can last, whether energy and other value stocks can continue outperforming tech and growth shares and if the market is primed for a potential rise in inflation.

With the benchmark S&P 500 nearing the 4,000 level for the first time, the health of the economy, the pace of inflation and a recent rise in bond yields are expected to be hot topics when the U.S. Federal Reserve meets on Tuesday and Wednesday.

Ample crude supply that weighed on global oil prices and concerns over a push toward “green energy” were among the factors pulling down energy stocks for most of the past decade. Oil prices plummeted in the coronavirus-fueled downturn amid global travel restrictions and shutdowns but roared higher in recent months, buoyed by breakthroughs in vaccines against COVID-19.

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By: By  for Reuters


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