Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Energy ETFs Are Scary Enough To Dump Ahead Of Halloween

By Zacks Investment ResearchStock MarketsOct 29, 2019 01:00AM ET
Energy ETFs Are Scary Enough To Dump Ahead Of Halloween
By Zacks Investment Research   |  Oct 29, 2019 01:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Oil and energy ETFs have been on a rough ride since early 2014. A global growth slowdown and rising U.S. shale output have taken the space into a tailspin. Stringent efforts by the OPEC and some non-OPEC countries to cut this output have definitely offered some occasional relief to the oil patch but there’s no concrete solution in sight yet. Notably, despite OPEC’s repeated efforts, crude failed to hold up well in the recent past (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs?).

Oil prices had sunk below $30 in early 2016 and are now around $55/ barrel. Along with research houses like Goldman Sachs (NYSE:GS), we do not see any material recovery for oil prices next year as well. The U.S. investment bank stated that Brent crude futures are caught in a tug of war between “worsening growth expectations and rising Middle East tensions” of late, per CNBC. While the drop in expectations is concerning, rising Middle-East tensions have offered relief sporadically (read: Oil ETFs in Focus Amid Trade War Blows & Rising US Supply).

Subdued Earnings in the Cards

A bunch of big energy names are likely to report third-quarter earnings this week, and the “results are expected to be worse than the same period in 2018.” For the quarter, oil/energy companies are likely to report a 34.8% slump (maximum decline among 16 Zacks classified S&P 500 sectors) in earnings on a 4.8% revenue decline.

So far, 10.3% companies have released their quarterly numbers, of which reported a 12.1% decline in earnings and a 4.9% dip in revenues. There was a blended beat ratio of just 33.3%, per Zacks Earnings Trends issued on Oct 23.

Operating Woes

Some of the largest banks financing the U.S. oil and gas drillers recently lowered their expectations for oil and natural gas prices. The companies have reduced the value of oil and gas companies’ reserves.

“The value of reserves estimated by banks serves as the basis for many small oil and gas firms to get funding for their drilling activity and operations. And in recent months, in many cases, this is the only source of funding that many of them can get because the equity and bond markets are practically closed for small oil and gas firms right now,” per Not to mention, such lowered value of reserves will result in more limited access to the capital markets.

Concerns Over Demand Growth

Sluggish global growth is a crisis in the space. The IMF slashed its global growth projections lately, calling for 3% (a decade-low) and 3.4% expansion in 2019 and 2020, respectively. Projections were cut from the previous levels of 3.2% and 3.5% recorded this July. Notably, the forecast for this year marks the lowest growth rate since 2009.

The Atlanta Fed’s GDPNow model estimates that the U.S. economy expanded 1.8% in the third quarter, down from its 2% growth in the second quarter. Goldman Sachs also trimmed its outlook for Q3 GDP in recent times and quoted the projected figure at 1.7% (read: S&P 500 ETFs & Stocks to Buy on a Likely Great Rotation).

This suggests a lower demand for oil too. Goldman Sachs tempered its oil demand growth forecast to 950,000 barrels per day (b/d) in 2019, down from the previous estimate of 1.25 million b/d. It also cut its forecast for demand growth in 2020 to 1.25 million b/d, down from 1.45 million b/d.

Massive Stock Market Underperformance

Constant underperformance has led investors to lose faith in oil stocks that have been the worst performers in the S&P 500 this year. Investors should note that the Invesco S&P SmallCap Energy ETF (NYSE:XLE) PSCE has tanked about 81.2% in the past five years, 62.5% in the past three years, recorded a 50% loss in the past year, and a respective of 23.6% and 4.8% losses year to date and quarter to date.

Other energy ETFs SPDR S&P Oil & Gas Equipment & Services (NYSE:XES) ETF XES, SPDR S&P Oil & Gas Exploration & Production ETF (CSE:XOP) , VanEck Vectors Oil Services ETF (CA:OIH) and Invesco Dynamic Oil & Gas Services ETF PXJ — have also underperformed consistently in the last five-year, three-year, one-year and year-to-date period. Five-year losses were in the range of 60% to 78%, while year-to-date losses have been around 15-20%.

Investors should note that most of the energy ETFs carry a Zacks Rank #4 (Sell) or #5 (Strong Sell). The above-mentioned analysis explains the ranks and the reasons why energy ETFs are frightening enough this Halloween.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Invesco S&P SmallCap Energy ETF (PSCE): ETF Research Reports

SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports

VanEck Vectors Oil Services ETF (OIH): ETF Research Reports

SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports

Invesco Dynamic Oil & Gas Services ETF (PXJ): ETF Research Reports

Original post

Zacks Investment Research

Energy ETFs Are Scary Enough To Dump Ahead Of Halloween

Related Articles

Energy ETFs Are Scary Enough To Dump Ahead Of Halloween

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email