Energy Sector: Morgan Stanley Recommends Buy and Returns Outpace Tech
The AI boom and Big Tech may be the focus of media attention right now, but smarter US investors are quietly flocking to energy stocks.
In fact, the energy sector is the most crowded of all 11 sectors in the US market, with the sector's favorite benchmark, Energy S elect Sector SPDR Fund up 10.7% year-over-year, compared to the yield of 7.9% of the Technology Select Sector SPDR Fund and the 9.4% gain of the S&P 500. Energy is not news, but it makes money.
According to Citi, the energy sector is now the busiest US quant factor, noting that once it reaches this level, it tends to underperform over the next one to six months.
The stock market is in “one of the longest periods of overbuying in history.” Typically, such an extreme period is followed by a stable, “Sideways” market rather than a dramatic pullback, which strengthens Canaccord's view to buy weakness if/when it arrives,” say analysts at Canaccord Genuity .
But not everyone is worried about the energy sector's enormous momentum. Morgan Stanley remains pessimistic about the US stock market as a whole; However, MS upgraded energy stocks from “Neutral” to “Buy,” noting that energy companies have lagged oil's performance and that the sector is rated favorably.
“Taking into account the Fed's recent messaging and assuming it is less concerned about inflation or looser financial conditions, commodity-oriented cyclicals and energy in particular may be due for a recovery,” they said.
Increase on energy
Commodity analysts at Standard Chartered noted that energy markets started the new year with an overly pessimistic view of oil demand, and see an oil price rally in the coming months.
StanChart estimates January oil demand stood at 100.24 million barrels per day (mb/d), up 2.67 mb/d from a year earlier and 0.25 mb/d in more than the latest StanChart forecasts. StanChart has now revised its previous demand growth forecast for 2024 to 1.69 mb/d from 1.64 mb/d previously. Analysts also forecast a prolonged period of inventory drawdown over the H1-2024 period, with a cumulative draw of 185mb compared to a H1-2023 build of 230mb.
StanChart predicted global demand will hit a new all-time high of 103.01 mb/d from May, with June setting a new record at 103.62 mb/d, while August demand is expected to be even higher at 104.31 mb/d. The stable growth in demand will fuel the constant increase in prices.
In the face of this increasing demand, supply instead is lacking: it is doubtful that the USA will be able to increase production beyond what already happened last November. Russia has instructed it to even reduce production and it is expected to stand at 10.8 million barrels, one million less than the 2019 peak. Meanwhile, Russia is intent on keeping supply limited in an attempt to support prices taller. A few days ago, Moscow ordered oil companies to reduce their production in the second quarter, so that the country can reach its OPEC+ production target of 9 million barrels per day (bpd). Private sources told Reuters that Moscow had given specific targets to each oil company, an indication of Moscow's commitment to maintaining the OPEC+ commitment.
Therefore, oil supplies will hardly be able to exceed the increase in demand, indeed they will be held at a lower level, and this will fuel the increase in oil prices already underway.
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The article Energy sector: Morgan Stanley recommends buying and returns outperform technology comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/settore-energetico-morgan-stanley-consiglia-di-acquistare-e-i-rendimenti-superano-il-tecnologico/ on Thu, 28 Mar 2024 11:08:18 +0000.