The stock market pushed further into record territory on Friday, ending an extraordinary week. There are currently a lot of uncertainties in the market, but investors are still convinced that everything will be fine. So, we can talk about the upward surge in investors.
USReviews market participants generally reject negative news about elements such as low job creation levels and record the number of COVID-19 cases, imagining instead that coronavirus vaccines will eventually bring the pandemic under control, and will stimulate a new wave of expansion.
With optimism at exuberant levels, the question is whether the stock market can keep up in 2021. To answer this question, you need to look at a certain set of actions. It is not a big part of the market, but the way it handles it could make or break 2021 as a winning or losing year.
The energy sector will be a safe investment for 2021
Energy stocks have long been off the radar of most investors. This for good reason: energy stocks as a group fell by more than 30% a year, compared to the S&P 500’s overall yields of more than 15%.
The challenges facing the oil and gas industry come from two sources. Even before the COVID-19 pandemic broke out, supply and demand factors were unbalanced in the energy sector, largely due to advances in shale oil and other unconventional resource recovery technology. Then, when the pandemic hit, the bottom fell off the crude oil market, briefly sending negative prices as demand evaporated overnight.
However, ignoring the energy, many investors missed a huge recovery. At the beginning of November, energy stocks fell by 50% during the year. However, in the last month alone, they have increased by almost 40%.
Energy stocks played a key role in Friday’s stock market gains. Oil prices topped $ 46 a barrel, slowly but steadily making progress toward more sustainable levels. As a result, many of the best-performing stocks with large capitalization came from energy:
- ConocoPhillips (NYSE: COP) gained more than 7%, while EOG Resources (NYSE: EOG) increased 10% and Canada’s Natural Resources (NYSE: CnQ) gained 5%.
- Among refineries, Phillips 66 (NYSE: PSX) gained 7%, with Valero Energy (NYSE: VLO) just behind, up 6%.
- The oil services sector also performed well, with Schlumberger (NYSE: SLB) and Baker Hughes (NYSE: BKR) earning 6% to 7% during the day.
Why energy is important
Energy stocks represent a small part of the global market, so it may seem that their performance should not matter. But, as a cyclical component of the economy, energy drives many activities not only within the sector but also in related fields, such as industry and materials. A cyclical rally would eventually lead to many of the bull market delays in March to make the rounds, widening the rally and making it more sustainable.
Instead, another blow to energy would be a major blow to confidence in the economy. The technical actions have done a good job bearing more than their fair share of the burden of leading the economy, but the technology sector cannot do everything on its own. The gains of the stock market in 2021 will depend in part on whether other sectors will play their role.