According to analysts at JPMorgan Chase & Co., U.S. stocks were on a more volatile journey in 2021, but the energy “rally” in September is not a sign of the market rising despite concerns among some investors.
“The declining energy sector market grew more than 9% last month and was the only sector on the S&P 500 index,” analysts said in a JPMorgan research note on U.S. equity strategy on Thursday. According to Factset, the S&P 500 fell nearly 5% in September, its first monthly fall since January.
“This unusual deviation in the performance of the sector has suggested to some that the market has peaked and it is ready for a major correction,” analysts said in the report. But “we are constructive in equities,” they wrote, adding that energy is still “one of our favorite sectors.”
Oil and natural gas prices have risen in recent times. Power sector of S&P 500 SP500.10,
According to data from Factset, based on Thursday afternoon trading, it has risen more than 45% this year, up more than 17% from the broader index. Energy Select Sector SPDR Fund XLE,
The same spread was also 45%.
Read: The stock market could absorb 130 130 oil, JP Morgan Kolanovic said
JPMorgan analysts say “high oil is generally positive for large-cap equities, as JPMorgan analysts say the burden of increased energy costs has spread across the economy” to families, businesses, governments and oil importers.
Analysts write, “or all other equivalents, rising oil prices will certainly depend on some sectors that are directly linked to the cost of consideration,” or use energy as input / feedstock, such as airlines, trucking and chemicals.
Read: Natural gas prices extend pullbacks from many-year highs; The future edge of oil is high
As the broader benchmark of U.S. stocks rises in 2021, the rotation between style and sector has created ongoing volatility in the market, Charles Schwab’s chief investment strategist Liz Ann Sanders said in a phone interview on Thursday. About 91% of the S&P 500 index SPX,
He said this year has seen at least a 10% correction from some high points.
“Don’t try to rotate the front-driven sector,” Saunders said. Instead, investors can make their portfolios more frequent in this fast-paced environment so that they cut profits during strengths and “add vulnerabilities.”
According to analysts at JP Morgan, energy is attractive from the point of view of risk and rewards, who have mentioned the fundamentals of strengthening and “low valuation compared to the market”.
“Since the S&P 500 Energy is structurally integrated and quality-dependent, refiner-to-pure E&P and services will see stronger growth in the 80 80-100 oil situation,” they wrote in their report. “Small-cap energy offers strong enrichment due to higher gearing of fuel, balance sheet recovery, and potential M&A targets as larger peers strategically look at build-up reserves.”
The S&P 500 index rose 1.1% on Thursday afternoon, showing the same gains in its check strength sector, according to Factset data. Russell 2000 Index RUT,
A measure of small cap stocks, shows a large increase of 1.7%.