SINCE late February, when investors fell out of love with biotechnology and other high-flying stocks, the market’s fuel has been oil.
Energy names have been the best-performing sector in the S&P 500 since February 25 when the selloff in high-growth stocks began. The sector will look to build on recent gains when bellwethers Exxon Mobil, Chevron and ConocoPhillips report results this week.
The rotation to value has limited the broader market’s selloff. That could continue: Morgan Stanley said in a recent note that strong rotations to value names are usually followed by longer periods of value leadership.
Energy sector funds have attracted inflows in nine of the past 10 weeks; flows have averaged $488.9m weekly over the last four weeks, the most since March 2011, according to Lipper, a Thomson Reuters company.
On a total return basis, energy is up more than 7 per cent since February 25, compared with a gain of just over 2 per cent for the S&P 500 and a loss of 1.8 per cent on healthcare, the worst-performing sector in that period.
According to the US Federal Reserve, capacity utilisation in the oil extraction sector currently sits at 99.2 per cent of total capacity, far exceeding the average over the previous 40 years of about 92 percent.
So far in this earnings period, 14 energy names have reported results, with 11 – or 79 per cent – exceeding estimates, making energy number one among sectors with more than 10 companies reporting.