Wall St Week Ahead Surging US energy shares reflect robust growth, inflation worries

Wall St Week Ahead Surging US energy shares reflect robust growth, inflation worries


Wall St Week Ahead Surging US energy shares reflect robust growth, inflation worries

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NEW YORK (Reuters) - U.S. energy shares are soaring as investors benefit from rising oil prices and a stronger-than-expected economy, while seeking to protect their portfolios from a feared resurgence of inflation.

The S&P 500 energy sector (.SPNY), opens new tab is up about 17% in 2024, roughly doubling the broader index's (.SPX), opens new tab year-to-date return. Its gains have accelerated in recent weeks, making it the S&P 500's best performing sector in the past month.

One key driver is the price of oil: U.S. crude has risen 20% year-to-date due to an unexpectedly strong U.S. economy and worries over a broadening Middle East conflict.

Some investors also believe rising energy shares could hedge against U.S. inflation. Consumer price rises have proven more stubborn than expected this year, threatening to restrain the broader stock rally by undermining expectations for how much the Federal Reserve will cut rates in 2024.

"If inflation is going to pop up again ... the hedge is to have some commodities exposure," said Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group.

The portfolios she manages have been overweight in energy stocks, including those of oil majors Exxon Mobil (XOM.N), opens new tab and Chevron (CVX.N), opens new tab, as she noted more disciplined capital spending by energy companies.

Among the top energy sector performers so far this year were Marathon Petroleum (MPC.N), opens new tab, up 40%, and Valero Energy (VLO.N), opens new tab, up 33%.

Wall Street’s main indexes plummeted on Friday, capping a week marked by hotter-than-expected inflation and jobs data that forced investors to reset expectations for the timing of interest rate cuts.

The economy will be in focus in the coming week as first-quarter earnings season heats up, with reports from Netflix (NFLX.O), opens new tab, Bank of America (BAC.N), opens new tab and Procter & Gamble (PG.N), opens new tab. Monthly U.S. retail sales out on Monday will offer a view into U.S. consumer behavior, on the heels of another stronger-than-expected inflation report last Wednesday.

Energy stocks have risen as a U.S. equities rally has broadened beyond the growth and technology companies that led gains last year. Investors' appetite for non-commodities-related sectors could take a hit, however, if inflation expectations keep rising and worries about a hawkish Fed grow.

Inflation fears have made markets more turbulent in recent weeks. Outside of equities, concerns over rising consumer prices have lifted gold, a popular inflation hedge, to record highs. Energy stocks were also thriving outside the U.S.

Shares of miners, steel firms and other commodity-linked companies have risen along with energy stocks.

"Investors are looking at the world and they're seeing that the economy really isn't slowing down much ... at a time when there are various concerns over bottlenecks regarding supplies of commodities, especially oil," said Peter Tuz, president of Chase Investment Counsel Corp.