Energy renaissance as post COVID-19 world gets priced in
Energy stocks are rising against the global equity market, extending the massive rally since 8 November when Pfizer announced its COVID-19 vaccine writes Peter Garnry, Head of Equity Strategy at Saxo Bank.
On Monday, energy stocks rose on better than expected US November PMI figures.
Since the market got the first COVID-19 vaccine news from Pfizer on 8 November, energy stocks have outperformed global equities by 24% underscoring investors are positioning themselves for a normalisation in 2021.
Brent crude has also moved into backwardation, suggesting oil markets are normalising which could mean both higher prices and higher volume.
Before we get too carried away about the outlook, it is worth recognising the fact that work-from-home and flexible work hours could still cause a more permanent reduction in oil demand, and the transition to electric vehicles will also add headwinds over the coming years. But as we have seen before, the energy sector’s underperformance relative to the global equity market has been massive – down 76% since the peak in 2008.
This underperformance combined with low equity valuation could make energy stocks the best segment in global equities in 2021.
Vaccine good for energy
The new COVID-19 vaccine from AstraZeneca can be stored at refrigerator temperatures for much longer than the Pfizer and Moderna mRNA vaccines, which means that distribution will be much faster, thus the market is discounting a faster path to normalisation. This is good for energy no matter what and could prove a catalyst over the coming months.
With Yellen becoming the new US Treasury Secretary, we have the potential setup for a much tighter link between fiscal and monetary policy in the US and effectively it is a move closer to the absolute loss of central bank independence.
Yellen has focused her academia career on labour issues and inequality, and such her reign as treasurer could lead to more focus on full employment through fiscal measures with central banks asked to facilitate these policies.
The Republicans still control the US senate, although the special senate election in Georgia in January could change that, and as such it is still uncertain whether Biden and Yellen can deliver big fiscal impulse to the US economy. Nevertheless, the market is currently betting on it and energy stocks are a natural extension of this bet.
Where to invest $1,000 right now
Short-term positions in small, early stage ASX companies,
with high potential and near term price catalysts.
Focusing on resource exploration, early-stage tech, and biotech.
Exceptional opportunities across a broad range of
early-stage growth sectors with strong management.
Seeking 1,000% plus returns across medium to long-term holds.
Longer-term positions in a variety of sectors.
Seeking strong management where traction
is established and have entered into a growth phase.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
Publishers Notice
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.
