Wednesday, May 7, 2014

Energy stock gains lack support from crude oil

Energy stocks in the U.S. are getting too little help from oil prices to sustain their market-leading advance, according to Brian Belski, BMO Capital Markets’ chief investment strategist.

The ratio of the Standard & Poor’s 500 Energy Index to the S&P 500 climbed in the past three months even as crude oil bounced around $100 a barrel in New York trading.

Energy has been the best performer among the 10 main industry groups in the S&P 500 since Feb. 3, when the broader index set this year’s low. The industry gauge rose 15 percent through yesterday, or more than twice as much as the S&P 500.

“We are somewhat surprised by energy’s recent strength” because the oil market has failed to keep pace with the gains, Belski wrote in a May 2 report. Crude settled yesterday on the New York Mercantile Exchange at $99.50 a barrel after swinging between $96.26 and $105.22 since February.

“Unless fundamental conditions improve significantly, performance is likely to suffer in the coming months,” the New York-based strategist wrote. Oil would have to reach $120 a barrel to justify the current prices for energy stocks, based on the relationship between them since 1989, he added.

Belski rates energy stocks as market weight, which means investors ought to keep their holdings in line with the group’s share of the S&P 500. They were about 11 percent of the index’s value as of yesterday, according to data compiled by Bloomberg.

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