ExxonMobil Drops Out Of Top 10 In S&P 500, Tech Stocks Shine

The hydrocarbon energy industry was recently dealt a major blow, with Exxon Mobil Corporation (NYSE:XOM) dropping from the S&P 500 Index’s top 10 companies, ending a nine-decade-long streak. This August, energy stocks climbed down the ranking list, giving way to technology stocks. Currently, the top 10 places are occupied by companies from technology, communications, health care and financial services. This marks a major event for the energy industry as a whole, which can shape the future of the market.

Gradual Decline of Energy Stocks

In terms of company rankings, a decade ago, ExxonMobil — the largest publicly-traded energy company — stayed at the top spot of the list for six straight years. The Zacks Rank #3 (Hold) company is now in the 12^th spot, with its peer Chevron Corporation (NYSE:CVX) holding the 19^th place. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, energy stocks made up 25% of the index about four decades ago, which declined to 11.7% a decade ago. The sector now accounts for 4.4% of the index. If we look at the price performance, ExxonMobil gained only 0.6% year to date while the S&P 500 jumped 15.3%. The Oils-Energy sector fell 5.1% during this time period.

Factors Affecting Hydrocarbon Market

There are several factors that affected the energy sector, among which soft as well as volatile oil prices played spoilsports. With the shale-oil boom, the hydrocarbon market stayed oversupplied for a long time, partially offset by the Organization of the Petroleum Exporting Countries’ production-cut initiatives and Iranian sanctions from the Washington.

Moreover, concerns regarding future oil demand affected the sector to a significant extent. With developing countries like India, China and others expected to see a bleak economic growth rate in the coming years, demand for hydrocarbons is expected to decline further. This has put a lid on oil prices. Also, the trade war between Washington and Beijing has sparked concerns regarding oil demand.

Additionally, climate changes have triggered a drive toward renewable energy sources. Environmental campaigns have witnessed somewhat success with several major funds withdrawing from stocks in fossil fuels. Also, efficiency gain in wind, solar and other renewable and clean energy sources are working against the fossil-fuel industry. All these key factors compelled investors to dump oil stocks.

Tech Leads the Way

Currently, the top three spots are occupied by tech giants Microsoft Corporation (NASDAQ:MSFT) , Apple Inc. (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) . Overall, the tech stocks have come a long way in the last few years supported by major breakthroughs. In the year-to-date period, the Zacks Technology sector jumped 18.7%, with Microsoft, Apple and Amazon.com gaining 33.9%, 30.4% and 19.2%, respectively.

With the energy industry losing its position and the technology industry coming to the forefront, the dynamics of the market are set to change in the coming years. The newfound strength in technology will likely help renewable energy sources see efficiency gain and cost reduction. Over time, it can lead to a further decline in the hydrocarbon market, while boosting investments in renewable energy sources.

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