Energy Stocks Make a Comeback Amid Strong US Economic Growth
Sector Rebounds After Two-Month Surge, Outpacing S&P 500 Performance in Current Quarter
The downtrodden energy stocks, which have lagged behind for a while, are now showing signs of a revival as the financial industry urges investors to reevaluate their stance on these undervalued shares, benefiting from the resilience of the US economy.
Despite a steady two-month upward trajectory that has positioned them as the leading market performers this quarter, energy companies within the S&P 500 Index are still recording losses for the year 2023. A substantial withdrawal of nearly $11.5 billion has occurred this year from around 80 US-listed exchange-traded products tied to the energy sector, surpassing the combined outflows from all other sectors. Notably, the Energy Select Sector SPDR Fund, responsible for tracking S&P 500 stocks, has experienced a net outflow of $3.7 billion.
This divergence contradicts the trend observed between 2020 and early 2022, when approximately $35 billion flowed into these exchange-traded products, a pattern disrupted by the surge in crude oil prices following Russia’s intervention in Ukraine. Presently, the resurgence in crude oil prices is evident, having reached its highest point this year, bolstered by the US economy’s robust performance amidst interest rate hikes by the Federal Reserve.
Previously ranked as the poorest-performing sector in the S&P 500 for the current year, energy stocks had incurred a loss of about 10% by mid-May. However, as of the latest market close, the sector’s decline has moderated to just 0.7%, a stark contrast to the 17% gain recorded by the broader S&P 500. Investors have been drawn to the appealingly low valuations of energy companies as they seek diversification beyond the major technology stocks that spearheaded this year’s stock market rally.
The momentum witnessed in the sector is instilling optimism among energy proponents, who have consistently argued that it represents the most affordable segment of the S&P 500, offering substantial cash flows despite the first-half sell-off.
