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Why Was Energy Sector a Drag for Investors despite Rise in Oil?

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Energy sector versus the broader market

Between April 6 and April 13, 2017, the Energy Select Sector SPDR ETF (XLE) fell 1.9%. It was the third-largest loser among the sector-based SPDR ETFs that we’ll compare in this part of our series. US crude oil (USO) (USL) May futures rose 2.9% between April 6, 2017, and April 13, 2017. XLE fell despite the rise in crude oil because of the 1.6% fall in ExxonMobil (XOM) and 2.9% fall in Chevron (CVX). Both these stocks account for ~31.9% of XLE.

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SPDR ETFs

Among the SPDR ETFs, the Consumer Staples Select Sector SPDR ETF (XLP) rose the most. It rose ~0.5% from April 6, 2017, to April 13, 2017. The returns of the above SPDR ETFs are adjusted for dividends. The returns of the sectors broadly mirror the churn occurring in the market away from those that were earlier in favor following Trump’s victory.

During the same trailing week period, the S&P 500 Index (SPY) (VFINX) fell 1.2%, while the Dow Jones Industrial Average (DIA) (DJIA-INDEX) fell 1%. Energy accounts for 6.6% of the S&P 500 Index and 6.4% of the Dow Jones Industrial Average Index. The S&P 400 Midcap 400 Index (IVOO) (MID-INDEX), which has 3.4% exposure to the energy sector, fell ~1.6% during this period. The fall in energy stocks contributed to the losses in the broader markets.

Apart from the impact on the broader market, movements in crude oil (SCO) prices can also directly impact ETFs like the iShares US Oil Equipment & Services ETF (IEZ), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), and the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).

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