Energy sector versus the broader market
From July 7–July 14, 2016, the Energy Select Sector SPDR ETF (XLE) rose 3.7%. Let’s find out how XLE performed compared to other SPDR ETFs. Crude oil (USL) (SCO) (BNO) rose 1.2% between July 7 and July 14, 2016, as Brexit concerns eased and as traders bargain hunted following a sharp drop in prices. The rise in crude oil supported XLE.
Among the SPDR ETFs, the Materials Select Sector SPDR Fund (XLB) and the Financial Select Sector SPDR Fund (XLF) gained the most. They rose 6.1% and 4.8% from July 7–July 14, respectively. The rally was driven by the investor preference for cyclical stocks rather than defensive sectors, as US economic data showed favorable numbers. These sectors are also driven by the earnings expectations of individual companies operating in those sectors. The returns of these ETFs are also adjusted for dividends.
The above table shows XLE’s performance compared to ETFs representing other sectors.
On July 15, 2016, as of 2:18 AM EST, US crude oil was $45.17 per barrel, a decline of 0.5% compared to the closing price on July 8. Crude oil could close on a negative note this week. From July 1 to July 8, crude oil fell 7.3%.
The potential of a reversal in crude oil prices is an important factor for oil-weighted stocks such as RSP Permian (RSPP), Abraxas Petroleum (AXAS), Bill Barrett (BBG), Oasis Petroleum (OAS), and Clayton Williams Energy (CWEI). It also impacts ETFs such as the iShares US Oil Equipment & Services (IEZ), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).
In the final part of our series, let’s see why crude oil and natural gas drive energy ETFs.