Energy Sector Globally is Finally Waking up from a Deep Slumber 🌋

One of the most underrated and Under-appreciated studies in markets is recognising the importance of Market and Business Cycles.

With unprecedented volatility and losses seen off late in US Markets especially Nasdaq where more than 45% stocks fell 50% and above from their peak levels. There was one sector which was standing strong and outperformed the indices. That was the Energy Sector.

Here’s some data which shows the outperformance of Energy Sector :

S&P Energy is up by 18.28% whereas S&P 500 was down 6.65% and nasdaq fell by 12.34%

What’s interesting though is this outperformance is not specific only to last 30 odd days, Energy sector is actually outperforming headline indices from the last 1 year itself by a pretty wide margin.

Underperformance in the last decade

The reason why energy sector has not yet caught massive attention of the market is because this sector has massively under-performed S&P and Nasdaq

Triggers for Out-performance ?

  • With Central banks across the world looking to raise interest rates, Market usually tends to focus on value more than risky high growth companies.

  • This piece of information by Otavio Costa is quite important in this context :

Apple’s market cap is 40% larger than the entire energy sector.

Energy stocks generate almost 50% more in annual FCF than Apple.

  • One key observation is that it seems that the market is kind of factoring that the growth in fuel based energy consumption will be extremely low which ensures that the worst may already be factored in value wise.

  • Crude and energy market is already on fire from last one year to due to the supply side constraints

  • With a lot of geopolitical tensions emerging with Russia, Ukraine, European Union and US in a tussle , The energy market is more likely to continue it’s out-performance if the tensions remain high.

With Russian war , The trend of energy sector outperformance not only continues but grows more and more.

How long will this trend of long energy , short financials, tech and high PE stocks continue needs to be seen…