Energy stocks still lagging despite recent upswing

Benefitting from recent further rises in oil and natural gas prices

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The energy sector of the S&P 500 was the strongest performer yesterday, ratcheting up a 1.5% gain, partly thanks to the further rises in oil and natural gas prices which have been related to the freezing temperatures across the south of the US. Despite that gain, the energy sector is still over 20% below where it was at the start of 2020 and is therefore the worst performing sector since then (tech stocks have performed the best, up by almost 50%). That’s led many to bet on further price gains, especially given the belief among many that we are now in the first phase of a new commodity supercycle.

Macro

There was a huge surprise from US retail sales, which jumped by 5.3% MoM in January, or five times more than expected. That took the YoY growth rate to a massive 17.4%. Across the categories, the moves ranged from a 1.3% MoM rise for health & personal care sales to a 14.7% rise for electronics and appliance sales. The strength of big-ticket items suggests the latest stimulus checks played a key role.

Meanwhile, US industrial production rose to 2.5% YoY in January. The ISM manufacturing index suggests growth should rise a bit further.

The other data showed that the US business inventories-to-sales ratio was little changed at 1.3 in December. That is lower than its pre-virus level and is a reason to expect upward pressure on prices.

In fact, US producer price inflation rose to 1.7% in January, and this was not just an energy effect - core PPI inflation increased to 2.0%.

In the UK, core inflation was little changed at 0.9% in January. Retailers' price expectations suggest it could rise a touch in the coming months.

Finally on the data front, in the US NAHB home builder confidence rose to 84.0 in February. At that level, it suggests housing starts could soon drop back.

Markets

Gasoline, natural gas and oil prices all rose again yesterday amid continued cold temperatures in the southern US. Moves in the major commodities in the past week have now ranged from -3.8% for gold to 10.6% for natural gas

In the equity market, small caps have been underperforming in recent days.

Finally, crypto continues to power ahead.

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