2020 was not kind to energy stocks. The Information Technology (Tech) sector of the S&P 500 was up over 40% last year, beating the socks off the Energy sector, which fell roughly -37%.
However, in a big turn of events, Energy has made a comeback in 2021.
Looking at our featured chart above, we see that the S&P 500 Energy sector (green line) has gained roughly 40% so far this year, while the Tech sector (gold line) has risen just under 2%.
It appears that the economy will come roaring back this year, so many of the beaten-down stocks from last year—like the energy sector—are having their day in the sun. Demand for oil has surged lately as more people expect to travel and get out more in 2021.
Meanwhile, the rise in interest rates is threatening the high-flying tech stocks that did so well during the pandemic. In the financial jargon, a higher discount rate makes it harder to justify paying higher multiples for companies that promise earnings growth further down the road.
Whether this rotation becomes a long-term trend remains to be seen. But in the short term, at least, energy demand will likely stay high as the world economy gradually returns to a more normal state.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.