{"id":9682,"date":"2021-06-28T15:15:53","date_gmt":"2021-06-28T15:15:53","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9682"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"should-you-invest-in-the-energy-sector","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/should-you-invest-in-the-energy-sector\/","title":{"rendered":"Should You Invest in the Energy Sector?"},"content":{"rendered":"\n<p>We\u2019re about halfway through 2021, and many readers may be\nsurprised to learn that Energy is the top S&amp;P 500 sector performer\nyear-to-date. The Energy sector has registered a greater than +30% return for\nthe year (as I write), which is more than double the gains of the broader\nS&amp;P 500 index.<sup>1<\/sup><\/p>\n\n\n\n<p>Is Energy\u2019s performance poised to last, and should investors\nadd exposure? <\/p>\n\n\n\n<p>I\u2019m not so sure. For one, investors should note that\nEnergy\u2019s outperformance in 2021 is following years \u2013 even a decade \u2013 of\nunderperformance. From the S&amp;P 500 index pre-pandemic high through the\nbottom of the bear market in March 2020, the Energy sector fell more than -50%. Looking even longer term, one would find that the\nglobal Energy sector <em>has still not\nrecaptured the highs reached in 2007. <\/em><\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_06_28&amp;content=stock_market_outlook_report\">When Uncertainty Rises, Focus on the Facts and Data! <\/a><\/strong><\/p>\n\n\n\n<p>Concerns about the current energy sector and other factors surrounding the market may leave you uncertain when contemplating your next investing decision. But the key is not give in to fear and emotions! During this significant time of economic recovery, investors must stick to the facts and hard data. We recommend keeping your focus on the long-term by looking into key economic indicators that can make a positive impact on your financial success.<\/p>\n\n\n\n<p>To help\nyou do this, I am offering all readers our just-released Stock Market Outlook\nreport. This report contains some of our key forecasts to consider such as: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks\nrank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks\nJune view on equity markets<\/em><\/li><li><em>What\nproduces 2021 optimism?<\/em><\/li><li><em>Zacks\nforecasts for the remainder of the year<\/em><\/li><li><em>Top\nstocks in top industries<\/em><\/li><li><em>Sell-side\nand buy-side consensus<\/em><\/li><li><em>And\nmuch more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!&nbsp;<br> <strong><br>IT\u2019S FREE.&nbsp;<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_06_28&amp;content=stock_market_outlook_report\">Download the Just-Released June and July 2021 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2021_06_28&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>____________________________________________________________________________<\/p>\n\n\n\n<p>There are several forces at work for the Energy sector. Over\nthe past decade, the U.S. shale boom drove production and supply significantly\nhigher, and the response globally was to add even more supply \u2013 putting\ndownward pressure on prices and squeezing margins for U.S. shale producers.\nThis supply glut, coupled with the \u2018muddle through\u2019 economic expansion\nfollowing the Great Recession, negatively impacted the profit picture for many oil\nand gas producers, many of which were carrying high debt loads. Weak stock\nreturns followed. <\/p>\n\n\n\n<p>So, when considering the Energy sector\u2019s strong bounce in\n2021, I think it is important to see it as a product of a very weak base, with\nthe sector in effect retracing losses versus reaching new all-time highs. Crude\noil\u2019s strong bounce over the past year (chart below), which was attributed to\nlockdowns giving way to re-openings, drove renewed interest in the sector. This\ninitial surge in demand is likely to abate with time.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/3_pic1-5-1024x395.png\" alt=\"\" class=\"wp-image-9683\"\/><figcaption> <strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n<p>Looking ahead, the Energy sector\u2019s structural issues remain.\nFor one, spare capacity in the U.S. and via OPEC+ producers remain high,\nmeaning that new supply can come online quickly in response to a better profit\npicture. Indeed, higher crude prices have already spurred higher rig counts and\noil well completions in the U.S., which has historically been a sign of\nincreasing production. Assuming OPEC+ countries counter higher U.S. production\nby adding even more supply \u2013 as they have done in the past \u2013 the profit conundrum\ncould surface again. Uncertainty abounds.<\/p>\n\n\n\n<p>Finally, investors may also wonder what effect renewables could\nhave on the Energy sector outlook. There are two factors to consider here. Renewables\nare indeed gaining market share in total energy consumption, mainly at the\nexpense of coal. With electricity consumption, for instance, the share of\nrenewable generation was 28% in Q1 2020 \u2013 a growing figure.<sup>4<\/sup> But the\nsecond factor is the real kicker: many renewable energy companies (wind, solar,\netc.) are not even in the Energy sector! Many \u2018green energy\u2019 companies are actually\nclassified as Utilities. Their performance does not <em>directly<\/em> impact the performance of the Energy sector, since many\nare not even in the Energy sector to begin with.<\/p>\n\n\n\n<p><strong>Bottom Line for Investors\n<\/strong><\/p>\n\n\n\n<p>The Energy sector is off to a strong start in 2021, but at\nthe end of the day, the sector\u2019s overall contribution to the S&amp;P 500 index has\nbeen shrinking over the past decade. For investors, I think it is important to\nmaintain exposure to the Energy sector for diversification purposes, but it is\nalso important to make sure your weighting is close to in line with the sector\u2019s\nweighting in the S&amp;P 500. <\/p>\n\n\n\n<p>As I write, the Energy sector makes up 2.8% of the S&amp;P\n500 index, down from over 10% before the 2008 financial crisis.<sup>5<\/sup> For\ninvestors, it is important to make sure the energy sector exposure in your\nportfolio has shifted accordingly, in my view. <\/p>\n\n\n\n<p>This is\nwhen keeping a diversified portfolio is key. As we reach the halfway mark of\n2021, we also encourage investors to focus on key data points and economic\nindicators that can positively impact their long-term investments. To help you\ndo this, I am offering all readers our just-released Stock Market Outlook\nreport. This report contains some of our key forecasts to consider such as: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Zacks\nrank S&amp;P 500 sector picks<\/em><\/li><li><em>Zacks\nJune view on equity markets<\/em><\/li><li><em>What\nproduces 2021 optimism?<\/em><\/li><li><em>Zacks\nforecasts for the remainder of the year<\/em><\/li><li><em>Top\nstocks in top industries<\/em><\/li><li><em>Sell-side\nand buy-side consensus<\/em><\/li><li><em>And\nmuch more<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!&nbsp; <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Energy sector&#8217;s strong performance in 2021 follows years of underperformance\u2014and  future uncertainty <\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-9682","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9682","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9682"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9682\/revisions"}],"predecessor-version":[{"id":10366,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9682\/revisions\/10366"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9682"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9682"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}