At a time of record fuel demand, bountiful oil and natural gas, and expanding economies, no stocks are doing worse in the world than energy producers from BP to Hess Corporation. The MSCI World Energy Index has declined 9.6 percent this year, more than any other group, according to data. The gauge has climbed 45 percent since equities bottomed in 2009, less than any industry with earnings tied to economic growth. In the U.S., the stocks are at the cheapest levels relative to the Standard & Poor's 500 Index since 2009.
The divergence reflects the transformation of an industry where growing consumption of energy has been met with even bigger gains in supply. United States crude inventories are the highest since 1990 and natural gas prices have lost 38 percent in 12 months amid a glut spurred by hydraulic fracturing. Bears say energy producers, making up about 10 percent of global stocks, will keep equities from advancing. Bulls say the market will rally when their shares rebound. "The S&P 500 will have a tough time making meaningful progress until the energy sector bottoms and begins to move higher," Jim Russell, the Cincinnati-based chief equity strategist at US Bank Wealth Management, which oversees about $116 billion, said in a phone interview on June 20. "Even though the valuations of the stocks are cheap, the fundamentals have not yet bottomed." The MSCI World Index slipped 0.2 percent to 1,205.67 last week, while Houston-based Plains Exploration & Production and Encana, Canada's biggest natural-gas producer, tumbled more than 9.8 percent. The S&P GSCI commodities gauge slid to the lowest level since 2010, bringing its loss since February to 21 percent, as manufacturing reports for the euro area and China indicated contractions. Futures on S&P 500 Index fell as much as 0.6 percent yesterday. In the last bull market, the industry surged 242 percent. Energy stocks are trailing the S&P 500 by 43 percentage points since March 2009.
Exxon Mobil and Baker Hughes Inc. are up less than 45 percent since then, while the US equity gauge almost doubled. In the last bull market, which ended in October, 2007, the industry surged 242 percent, better than any industry and more than double the full index. That rally occurred as earnings from oil and gas explorers and refiners climbed to 12.9 percent of overall S&P 500 profits in 2007, according to data compiled by Howard Silverblatt, a New York-based senior index analyst at S&P. The proportion has since fallen to 10.7 percent. Profit estimates Energy companies are the only US industry whose earnings forecasts have been revised from growth to contraction in 2012, based on more than 10,000 analyst estimates tracked by Bloomberg.
Profits for the group will drop 5.8 percent, the projections show. In January, analysts predicted income would climb 2.2 percent. Earnings in the entire S&P 500 are forecast to grow 7.4 percent this year. Since 2000, there had been two times when energy shares lagged behind the S&P 500 for four months or more, according to data. The US equity benchmark fell on every occasion, with losses averaging 12 percent over the next three months. The last time the industry trailed for this long, the five months ended March 2010, the S&P 500 slumped as much as 16 percent from April through July.
