S&P 500 showing signs of weakness relative to Oil and Energy Sector
The S&P 500 continues to march on with prices now pressuring the psychological 2100 barrier. While this suggests that investors are maintaining long equity positions -- and money managers are overweight US names -- all is not well relative to the commodity space -- especially oil and the energy sector.
The monthly chart below, which shows the S&P 500 relative to oil, is exhibiting early signs of trend exhaustion, suggesting increased risk of a break lower and a reversal of the bullish equity trade. Cross-asset managers are likely to take advantage of this by reducing equity exposure and increasing their exposure in both oil and the energy sector.
This fresh inflow of funds would help to buoy already improving oil prices -- and extend the current rally from the February lows -- as well as offer fresh trade ideas in energy stocks, which have, until recently, proven to be sharp underperformers.
Energy Stocks To Watch
Within the equity space, we have seen strong April rallies in Chesapeake Energy (NYSE:CHK), ONEOK (NYSE:OKE), Murphy Oil (NYSE:MUR), Range Resources (NYSE:RRC) and Southwestern Energy (NYSE:SWN). And we anticipate further price improvement in the coming months as cross-asset and equity managers gradually move cash into the energy sector.
Taken as a whole, we think energy is poised for a turnaround and money managers can take advantage of this via oil positions or selected stocks within the energy sector.
