Energy Stocks Surge
Energy stocks have shown a significant surge this month, with the S&P 500 Energy Select ETF (XLE) rising more than 9%, surpassing the benchmark index’s increase of nearly 3%.
Year-to-Date Winners
Year to date, the Energy sector has secured its position as one of the top-performing sectors, following closely behind Communications Services and Information Technology.
Oil Prices Drive Energy Stocks Surge
The surge in energy stocks is closely tied to the impressive performance of oil futures, which have climbed over 13% since the beginning of 2024. West Texas Intermediate (CL=F) and Brent (BZ=F) crude oil prices hovered around $82 and $86 per barrel, respectively, as of Wednesday.
Factors Behind the Rally
Several factors have contributed to the rally in oil prices, including falling inventories, drone attacks on Russian refineries, and ongoing output cuts from the OPEC+ alliance.
Analysts’ Upgrades
This week, Morgan Stanley analysts upgraded the Energy sector to Overweight from Neutral, citing the potential for upward revisions in earnings and highlighting the sector’s strong breadth and attractive valuation.
Bullish Outlook
Morgan Stanley’s Michael Wilson forecasts Brent crude reaching $90 per barrel by the third quarter, driven by tightening supply-demand dynamics. Wilson expects a convergence between oil prices and the relative performance of Energy equities.
Notable Movers
Key energy companies like Diamondback Energy (FANG) and Pioneer Natural Resources (PXD) have seen substantial gains, with year-to-date increases of 26% and around 15%, respectively.
Market Rotation
The surge in energy stocks marks a notable shift from last year’s market dynamics, where the Energy sector ended the year down more than 3% amid a decline in oil prices.
Broadening Market Rally
Analysts anticipate a broader market rally, with a rotation away from the previous market leaders, often dubbed the “Magnificent Seven” stocks, towards a more diversified set of companies.
Looking Ahead the Energy Stocks Surge
Bank of America’s Savita Subramanian expects a broadening of the market rally by June, with the potential for other S&P 500 companies to outpace the Magnificent Seven in earnings growth in the fourth quarter of this year.
