Global growth is booming, but oil stocks have lagged. Why that’s about to change

Energy stocks are about to play catch-up to the rest of the market, one strategist says.

Larry McDonald, founder of the Bear Traps Report investment newsletter, has been watching closely the apparent disconnect between strong global growth and lagging oil stocks. After all, domestic and international stock markets are near all-time highs, he pointed out. While energy has been lagging other sectors this year, the group is about to play catch-up as oil prices rise, he said. Here's why.

• OPEC is scheduled to meet next week in Vienna, and McDonald believes the group of oil producing nations is going to position for a further reduction in output; this could in turn buoy oil prices.

• Political tension in oil-rich nations like Saudi Arabia "could be very disruptive for the global oil market and create a supply shock," McDonald said Tuesday on CNBC's "Trading Nation."

• Furthermore, he said, "you've got India and China growing at the fastest pace in years. So you've got an economic pickup globally, and it's just setting up for a situation where oil and oil producers are coming into, potentially, a sweet spot."

• To capitalize on this growth, McDonald said investors should look to play one large energy exchange-traded fund, the XLE. He holds a $78 price target on the XLE in the next six to nine months, implying nearly 16 percent of upside from current levels.

Crude oil and the XLE settled higher on Tuesday.

Bottom line: McDonald believes the fundamental backdrop supports higher oil prices ahead, and energy stocks will benefit.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more