The Fate of the American Oil

TL;DR: The possibilities of energy stocks providing a comeback to last year's amazing run are being weighed down by a likely US recession and difficult comparisons to a great 2022.

The grey clouds looming over Wall Street during the past year allowed some shimmers of hope as energy stocks delivered a stunning encore to last year's run. It was noted that the S&P 500 energy sector's (.SPNY) year-to-date gain is 4.2%, slightly behind the increase for the overall index (.SPX). In 2022, a year that was otherwise terrible for equities and saw the S&P 500 decline 19.4%, the sector witnessed a 59% increase. This has been the first time that this sector has seen such good outcomes since 2013. Advocates of the energy sector argue that guaranteed gains would be seen in this industry for the next three years. Also, the price-to-earnings ratio currently stands around ten times, against 17 times for the market comprehensively. Many of the firms in this sector have high dividend yields; for instance, this week, 雪佛龙 (CVX.N) shares increased by about 5% following the company's announcement that it would be purchasing $75 billion worth of its stock, reinforcing potential gains for shareholders.?

However, with this year's entrance, the fear of recessions in the United States looms heavily. There are chances of combative rate increases and inflation. It is hard to say what the future holds for the economy regarding energy stocks. With continuous fluctuations in oil prices, it is evident that oil is a very volatile commodity. Especially with the ongoing conflict between Russia and Ukraine, the oil will be impacted. We cannot overlook that the world is also moving toward cleaner energy sources. In 2022, President Joe Biden signed the Inflation Reduction Act into law, allocating $369 billion for the funding and advancement of greener energy alternatives in the fight against climate change. This portrays a dubious future for the energy sector after an exceptional performance at the New York Stock Exchange last year. However, herein, we see that American energy companies are looking to benefit, especially in terms of price hikes (as that permits them more revenue) and the consequent increase in energy stocks.

Nevertheless, chances are more that energy will do just okay compared to other areas that have performed much poorer. However, for an average trader, it could be much safer to invest in areas pertaining to consumer discretionary and industrials. Also, with technological innovation in oil, prices have been going down for a decade, so a safer bet in terms of stock is more toward clean energy.

Written By: Jigyasa Sharma

Designed By: Nishita (she/her)