Energy

Macro Perspectives: Thu 6 May 2021

Yesterday, pre-market, we talked about the catalysts and technical set up for the extension of this move higher in oil prices.

During the day, of the top twenty performers in the S&P 500, eleven were oil and gas companies. These stocks were up anywhere from four to eight percent, and this is not an aberration (this year). Energy is the leading performing sector year-to-date in the index, up 34%.

And it's still a buy.

Remember, we are in the early stages of an economic growth boom - at least a nominal growth boom. And also remember, until the climate auctioneers/central planners can destroy fossil fuel industries and create a scalable enough alternative energy industry, we will be using a lot of oil.

That has put the surviving oil and gas companies in the driver's seat, to enjoy the rain of cash flow, as higher prices will continue to drive wider and wider profit margins, in an environment where the market share of these surviving companies has been protected by the climate action agenda (which has removed threats of new competition and new supply).

Often in markets, the pendulum tends to swing too far (to an extreme) in directions, we've seen it in the energy sector.

In 2010, the energy sector represented 10% of the S&P 500, today it's just 2%. And energy is the only sector in the S&P 500 that's down over the past five years - down 21%.

Here's a look at the year-to-date performance of the constituents of the energy sector in the S&P 500...

If you like betting on laggards, there are two stocks that are still underperforming the broad market index (COG and BKR).