While technology and AI stocks hog the limelight, U.S. energy companies have stealthily commenced a substantial rally.
The Energy Select Sector SPDR Fund XLE, representing U.S. energy stocks, has surged by an impressive 16% from its January 2024 lows, outstripping all other S&P 500 sectors in the past month.
This recent upsurge could signify the sector’s lengthiest winning streak since October 2021, with the Energy Select Sector SPDR Fund now merely three percentage points away from its November 2022 highs.
Driving this upward momentum is the recent escalation in oil and natural gas prices. West Texas Intermediate (WTI) light crude has climbed 15% year-to-date, breaching the $82 per barrel mark, a figure last reached in early November 2023.
Similarly, prices of Henry Hub natural gas have surged by 16% from a month prior, rebounding from nearly four-year lows.
This boost in commodity prices has been the primary impetus behind the rally in energy stocks; however, it has yet to spur analyst confidence in terms of revised price targets and earnings projections.
Exxon Mobil Corp. XOM, the dominant entity in the Energy Select Sector SPDR Fund’s portfolio, showcases this anomaly. Despite the surge in crude prices, Exxon’s median price target has slightly decreased from $125 at the end of 2023, with oil at $70 per barrel, to $121 as of March 19, 2024, even as crude prices have escalated by 15% year to date.
Median price targets for stocks encompassed within the Energy Select Sector SPDR Fund have remained mostly stagnant since the year commenced.
This indicates that the sector’s rally has largely slipped under the radar of prominent Wall Street analysts, potentially signaling an additional surge if they start adjusting their forecasts upwards.
Throughout history, U.S. energy stocks have exhibited a tendency to perform strongly during March and April, with April often marking the pinnacle of annual returns.
Data spanning 25 years since the introduction of the Energy Select Sector SPDR Fund substantiates this pattern, with mean returns nearing 1% in March and 1.7% in April.
This trend is further validated by the 55-year historical performance of Exxon Mobil and Chevron Corp CVX, both of which typically witness their highest monthly returns in April.
The positive momentum in U.S. energy stocks is supported not only by fundamental and seasonal factors but also by technical indicators, with the potential for an imminent golden cross signal.
Observing the daily chart, the 50-day moving average is on the verge of crossing above the 200-day average, a signal last observed in late August 2023, which propelled the energy stock index higher by mid-September that year.
With the highs from November 2022 in sight and the all-time highs from July 2024 11 percentage points away, the technical outlook seems promising. Moreover, weekly relative strength index (RSI) levels have surged past the 60 mark, indicating current bullish dominance in the short-term trend.
A positive weekly closure would signify the sixth consecutive week of gains for U.S. energy stocks, marking the lengthiest streak since October 2021. Notably, the record for the lengthiest streak goes to May 2007 when the XLE ETF recorded nine continuous weeks of gains.
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