S&P 500 & Nasdaq Analysis and Trends

[frenchee]

The Energy Bull Market Still Has Legs

After a brief correction relative to the S&P 500 in August, the S&P energy index has rebounded back to its relative high. Odds are growing that the relative ratio will eventually break out to the upside. Based on our Energy Sector Economic Conditions Index, which includes refining margins and the real oil price, energy company earnings are primed to keep outpacing those of the broad market as high expected returns on capital entice ongoing investment activity. As such, and given pessimistic analyst earnings growth expectations, profit results should surprise on the upside in coming quarters forcing an upward estimate re-rating. Even if our expectation for a modest oil price correction unfolds, prices above $30/barrel are still consistent with solid upstream earnings results. Moreover, because finished petroleum product prices have not kept pace with surging crude oil prices, an oil price correction would ease the recent pinch on refining margins. Bottom line: stay overweight energy stocks.