Energy stocks are in the middle of one of their best rallies in nearly 50 years

Published Thu, Dec 10 20201:22 PM ESTUpdated Thu, Dec 10 20204:03 PM EST

(This story is for CNBC PRO subscribers only.) Amid the recent rotation into value stocks, one sector stands out: energy. According to data from Ned Davis Research, the sector just posted its best 21-day relative return since at least 1972, up more than 30% versus the S & P 500. And with Thursday's move higher, the sector is up about 13% so far this month alone, making it far and away the best performing S & P group. By comparison, financials is the second-best performer, up just 3%. Notably for the stocks on Thursday, oil prices reached their highest levels since March with Brent crude oil even breaking above $50 a barrel . The move comes amid a broad market rotation away from growth and into value, as well as on the heels of optimism that a widely available Covid vaccine could spark renewed demand for petroleum products. "The 21-day relative return for the sector reached a record high of 30.2% on December 8," Ned Davis Research said in a note to clients Thursday. "This was the highest reading since our sector data began in 1972 and was almost a seven standard deviation event." Despite the recent outperformance, the sector is still down more than 30% for the year and on track for its worst year on record. Given the weakness, Ned Davis analysts Rob Anderson and Thanh Nguyen noted that an upswing after such a large drawdown is not uncommon. However, it could be getting a little too far ahead of itself. Looking at prior instances of when the sector outperformed the S & P 500 by more than 12% over a 21-day period, the firm found that the sector typically experienced a pullback after the initial rally. However, in the event of commodity bull cases, the sector "went on to see their relative uptrends continue for up to two years." JPMorgan's equity team likes energy stocks here. The bank's chief U.S. equity strategist Dubravko Lakos-Bujas told CNBC's "Halftime Report" on Thursday: "Energy's certainly the most controversial value call here. A lot of it is also due to the ongoing ESG theme and trend that many people continue to push. So, yes, it's not an easy one, but we do think given the massive divergence that's taken place during this pandemic and even before the pandemic, energy being sort of on the low end of that, we think that there's more room for the sector to catch up. There's a potential imbalance that we're seeing the months and quarters ahead." While oil prices remain below their pre-pandemic levels, they have been moving higher — rising to the highest level since March during Thursday's session — which points to a bull market for commodities. Still, the analysts said it's too soon to know if the uptrend will continue due to the host of unknowns that remain in the market, including OPEC's production output, as well as what President-elect Biden's policies will mean for the industry. "Ultimately, demand will need to recover for prices to continue to rise, and any setback in the reopening story could pose a risk for the sector." Ned Davis currently has a marketweight rating on the energy sector. - CNBC's Jesse Pound contributed reporting.

Oil pipelines, pumping rigs, and electrical transmission lines dot the landscape along California's "Petroleum Highway" (Highway 33) running along the northwestern side of the San Joaquin Valley on April 24, 2020, near McKittrick, California.

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(This story is for CNBC PRO subscribers only.)

Amid the recent rotation into value stocks, one sector stands out: energy.

According to data from Ned Davis Research, the sector just posted its best 21-day relative return since at least 1972, up more than 30% versus the S&P 500.

And with Thursday's move higher, the sector is up about 13% so far this month alone, making it far and away the best performing S&P group. By comparison, financials is the second-best performer, up just 3%.

Notably for the stocks on Thursday, oil prices reached their highest levels since March with Brent crude oil even breaking above $50 a barrel.