Energy, the new momentum trade? Why the sector's strong gains can increase from here

Published Mon, Apr 8 20243:00 PM EDTUpdated Mon, Apr 8 20245:07 PM EDT

The energy sector has pulled up from behind to overtake nearly every other sector of the market this year and may still have room to advance, according to analysts. Energy is up 17% for the year, significantly outpacing the 9% gain for the S & P 500 and second only to the media and entertainment sector, which is up 20%. Energy is the best performer over the past month with a gain of nearly 14%. Yet the sector is still underperforming the broader market by 14% over the past year, which means energy has not been included in many momentum funds, which typically look at 12-month performance, according to Jonathan Krinsky, a technical analyst with BTIG. "This suggests there is likely more upside for the group, as it just broke out of a two-year base with relative strength turning up," Krinsky told clients Sunday. "Perhaps it's becoming the new momentum?" XOM 1Y mountain Exxon Mobil shares over the past year Rob Ginsberg, a technical analyst with Wolfe Research, said the "long awaited energy breakout" finally happened last week as the Energy Select Sector SPDR Fund hit nine-year highs. The energy sector has gotten a lift as crude oil prices are on a tear this year after plummeting in the last quarter of 2023. U.S. crude has gained more than 19%, while Brent is up more than 16%, and gasoline futures have surged 30%. JPMorgan recently forecast that Brent futures could hit $100 a barrel by September. The oil rally has been driven by tightening global supplies as economic growth is robust and a coalition of OPEC+ members voluntarily slash production by 2.2 million barrels per day. Mounting geopolitical tensions are also raising fears of supply disruptions, as Ukraine repeatedly attacks Russian oil refineries while Israel and OPEC member Iran teeter on the brink of a direct confrontation. "We'll buy any overbought pullbacks so long as crude continues to look like its going higher," Ginsberg told clients Saturday. Exxon Mobil hit an all-time intraday high of $122.15 on Friday and has gained more than 21% for the year. The refiners Marathon Petroleum , Phillips 66 and Valero also hit all-time highs on Friday. Those stocks are up 47%, 27% and 40%, respectively, for the year. Diamondback Energy is trading at all-time highs Monday dating back to its IPO in October 2012, while ConocoPhillips is at levels that have not been seen since November 2022. Occidental , meanwhile, has gained 15% for the year and is just now breaking out, according to Krinsky. "We think it's a theme that has more to go as well," Ginsberg said of the energy sector rally. "As seen on our cover, the S & P 500 is at 5-month lows relative to energy." FANG ALL mountain Diamondback's all-time performance Correction: This article has been updated to reflect the correct spelling of ConocoPhillips.