Energy stocks look for catalyst out of doldrums

NEW YORK: Buoyant oil prices since Donald Trump’s election have provided no lasting halo effect for energy stocks as the sector’s profit rebound has lacked vigor, but that could change in the week ahead with a fresh crop of quarterly scorecards.
Helped by OPEC output cuts, oil prices are up roughly 20 percent since Trump’s victory, and US crude has held above $50 a barrel since mid-December. US Commodity Futures Trading Commission positioning data shows hedge funds and other speculators hold near-record-high net long positions in US crude futures and options.
But the S&P energy index, one of the key drivers to the stock market rally in the early days following the Nov. 8 election, has not kept pace. It has slumped nearly 4 percent for the year.
“We are seeing a little bit of a difference of opinion between equity investors and commodity investors,” said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas in New York.
“Equity investors seem a little bit more worried about the outlook for the commodity and the actual commodity investors themselves do not seem to be reflecting that.”
Should those opinions converge and energy stocks rebound, stocks could see more pronounced moves than have been seen in recent weeks, with the S&P 500 unable to register a move of more than 1 percent in either direction since Dec. 7.
The relationship between the energy sector and US crude has also tightened recently, with the 10-correlation at 0.61, its highest in three weeks.
Part of the underperformance in the sector looks to be attributable to a disappointment in quarterly results. Energy companies were expected to benefit from easy comparisons with last year, when the price of oil sank below $30 a barrel, but so far they have under-delivered against those expectations.
Thomson Reuters data through Friday morning shows energy sector earnings for the fourth quarter are on pace for a fractional decline. A month ago they were seen rising by nearly 5 percent.
Moreover, the group has so far posted a beat rate of only 58 percent, as measured by the number of companies in the sector posting better-than-expected results, well below the 68 percent rate for the S&P as a whole.