It is the only sector in the S&P 500 to close below its 52-week high, ending the day’s trading in a correction.
That is how close the energy stocks are in terms of sliding into a bear market, especially in the aftermath of clearly escalating trade tensions between the U.S. and China. Overall, the stock market has moved lower since Monday, showing mixed results across the globe.
Nevertheless, the energy sector closed the day nearly 19% below its 52-week high, with the current slump an indicator of the sustained struggle the sector has battled as it tries to break out. The slip is exacerbated by the general uncertainty surrounding oil prices as demand for crude around the globe disappoints.
Year-to-date, the energy sector has outperformed such sectors as utilities, healthcare, and materials- its 11% climb in the last four months beats any of these. However, the sector has continued to trail major stocks in tech and consumer discretionary markets.
Even though crude oil futures rallied earlier this year to see the sector grow by more than 40%, recent falters have meant that gains have been eroded. U.S. crude is down by over 10% since its high in 2019, while Brent crude, an international benchmark, has slumped nearly 9%.
The oil sector is likely to drop further following news that China would counter the U.S. tariff threats, with former Australian leader Kevin Rudd noting that the Chinese administration may not be particularly ‘desperate’ for a deal.
But the prospect of continued tensions is a concern in the energy sector as higher tariffs will significantly weigh on overall economic growth and in the end, impact demand for oil or natural gas.
The current dispute between the U.S. and China is also likely to see the energy sector, particularly the oil industry veer towards performances similar to those witnessed in 2014 when oil prices crashed to historic levels.
And the present isn’t helped by the fact that oil prices experienced wild swings in 2018, with the volatility rendering any company forecasts difficult.