February 21, 2020 Read More →

Column: Current energy stock bear market may be permanent

MarketWatch:

Even Wall Street firms are urging clients to dump energy stocks

While the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite index hover near all-time highs, energy stocks have fallen on very hard times.

Exxon Mobil — the world’s most valuable public company as recently as 2012 — has seen its stock price plunge about 40% from its all-time high above $100 a share in June 2014, a loss of more than $180 billion in market capitalization. The Energy Select Sector SPDR ETF, the largest energy-sector ETF, is down by a similar amount from that date.

Meanwhile, the S&P has surged more than 70% over those 5 1/2 years, outperforming energy stocks by over 100 percentage points.

An oil glut in the wake of the shale oil boom, which has vaulted the U.S. to the top of global energy producers, has caused some of the sector’s stock-market troubles. That oversupply has persisted, despite production cuts, and has kept oil prices in the $50-a-barrel range. This year, fears of the coronavirus have triggered another sharp sell-off in energy shares.

Corporations and big investors, who have to live in the real world and not on Planet Wishful Thinking, are stepping up. Their big bottom-line fear: Much of the carbon-based energy reserves companies like Exxon Mobil — the biggest stock in Energy Select Sector SPDR ETF, followed by Chevron and ConocoPhillips — have spent decades accumulating will remain in the ground or under the sea. Those potential “stranded assets” — assets these companies may never use and may even have to write off — have prompted Wall Street firms to mark down energy stocks’ valuations and urge clients to dump the shares.

That’s why the five-year bear market in energy stocks may turn out to be as permanent as the secular decline in newspaper publishers or department stores.

[Howard Gold]

More: This 5-year bear market in energy stocks could turn into forever

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