At the start of 2019, Energy stocks were a trendy pick. The feeling then was that the sector had been depressed too long and that a reversion to the mean at the very least would make the sector a winner in the upcoming year. So much for that…In fact, while energy has at least shown some gains this year, it has been by far the worst-performing sector in the S&P 500. The next worst is healthcare, with nearly three times the return of energy.
Now that we are all thoroughly depressed, the next question is will 2020 be better?
To answer that you have to look at the reasons for the poor returns in 2019.
The most obvious is the price of oil, but over the year, that doesn’t explain everything. WTI closed last year at around $45 and is now around $60, having spent most of the year ranging between $50 and $65. On that basis, energy stocks should be significantly higher than they are now. Still, rising oil would definitely help the sector, so what are the chances of that?
Well, OPEC+ still seem committed to limiting output, which will help. More importantly though, the cuts in capex by U.S. energy companies that have been such a feature of this year may well begin to have an effect. Less investment means slower production growth, so the shale boom that has kept oil low should at least slow, if not come to an end.
Far more influential, however, has been pessimism about global trade. With the trade war between the U.S. and China not…