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Income investment expert Bryan Perry shares his take on the out look of the energy sector.


Energy Sector Posting Impressive Year-End Rally

Income investment expert Bryan Perry shares his take on the out look of the energy sector.

Merry Christmas!

As the 2017 stock market rally rolled along, it did so without the broad participation of the energy sector.

Heading into the month of December, it was pretty much thought that investors will book their expected losses in energy stocks to reduce taxes from the gains collected from the technology, financial, consumer discretion, industrial, health care and transportation sectors.

While the price of WTI crude made its way back up to $58/bbl. earlier this month, the energy sector still lagged under the notion that the coordinated production cuts by OPEC and non-OPEC oil-producing nations would at some point come to an end or endure widespread cheating, as has been the historical norm. The risk was that it would make the production cuts useless. But instead, oil-producing countries have complied, as far as known, and now the market is firming up as tax reform lifts the view for accelerated growth for the United States that also will benefit the global economy.

It is as if there is an epiphany by investors in the demand-side part of the supply/demand equation that a genuine rebalancing is possible without the intervention of production manipulation. And it??s not just tax reform that is triggering the rally in energy stocks, economic data around the world is showing global synchronization of growth, according to investment research firm CFRA.

“For the second quarter in a row, all 45 countries tracked by the Organization for Economic Cooperation and Development (OECD) showed year-over-year growth in gross domestic product growth (GDP) in the third quarter,” investment strategist Lindsey Bell wrote Thursday. “CFRA views such broadening of growth an important sign of world health and a positive for the international outlook.”

This most recent proclamation of forecasted strong growth by the OECD has the investors feeling like another leg to the bull market is about to take hold, providing a fresh bid under not just the energy sector, but the commodities and materials sectors as well. Stocks of copper, steel, cement, fertilizer, wood and other deep cyclical commodities are seeing a rather sudden wave of new interest, something of a wake-up call even for value investors. While there have been two or three short-term commodity-related rallies this past year, they all petered out after a few days, making the current rally suspect as well.

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