The Dow Jones Industrial Average reached and briefly exceeded the 26,000 milestone today in intraday trading, checking off another box in the current Wall Street sprint. The Dow ended the trading day on Tuesday at 25,796.
The Dow climbed steadily throughout 2017, rising by nearly 30% in the past year and hitting numerous milestones along the way. The index rose through six 1,000 point milestones, growing from under 20,000 to its current high.
So how have energy sector stocks reacted to what CNN today called the “runaway freight train”?
Source: EnerCom Analytics
It turns out that oil and gas stocks, have not seen a comparable steady rise over the past 12 months.
XOI, an index of major oil companies, declined in the first half of 2017 as commodities prices—WTI and Brent—languished. WTI dropped from the low $50s in January to below $43/bbl in June. While oil prices began to rise soon after, oil stocks did not immediate see the result. XOI reached its low for the year in mid-August, when WTI had already risen to $47/bbl.
Source: EnerCom Analytics
Oil companies made big, fast gains since mid-August
Since then, however, oil companies have seen very rapid gains, rising over 30% in the past five months. For reference, the Dow Jones rose by 18% in the same period.
Natural gas companies experienced a similar trend but have not seen quite as significant of a rise. XNG, an index of major natural gas companies, also declined in the first half of 2017. While gas recovered rapidly in September, stocks then stagnated. Returns from the Dow have since surpassed those of gas companies, as XNG has grown by 16% in the last five months.
Oilfield service companies have demonstrated even stronger returns in the past five months, with OSX, an index of the sector, rising by almost 40%. However, this was preceded by an even larger drop in the first half of the year.
Large cap E&Ps were most stable through year
Source: EnerCom Analytics
Among the companies included in EnerCom’s database, large cap E&Ps showed the strongest gains in the past year. As might be expected, small and microcap producers were highly volatile, dropping significantly, to bottom out in September and October. Micro cap stocks have increased sharply in the past month, rising by nearly one third.
Strong earnings expected
With Q4/yearend earnings season lurking around the corner—Schlumberger reports first out of the box on Friday—oil companies may see the strong performance of the past months continue.
WTI averaged $55.36/bbl in Q4 2017, the highest quarterly average since Q2 2015, so investors will be able to examine how well companies can take advantage of stronger oil prices. As for the Dow, analysts are predicting another strong earnings season, and money managers expect earnings will exceed even these rosy forecasts. It took seven days for the index to move from 25,000 to 26,000, the next milestone may arrive even more rapidly.
