Why Stocks Aren't Fretting Over Rising Oil

Investing Implications

Having said all that, I will reiterate caution about the short-term outlook for energy stocks. Anecdotally, the papers are full of reports about possible energy supply glitches, from the IEA last week and the National Resource Council today. At the same time, Wall Street firms are ratcheting up their oil-price forecasts, including Goldman Sachs and Deutsche Bank on Monday.

Furthermore, energy stocks have begun to lag behind the performance of the underlying commodity, as Helene Meisler and I discussed in a video last week and a scenario that played out again Monday.

Furthermore, there's been a smattering of bad news from companies like Baker Hughes (BHI Quote) and Marathon Oil (MRO Quote) in the past week as well as second-tier outfits like Rosetta Resources (ROSE Quote) and Lufkin Industries (LUFK Quote).

Citigroup's Levkovich, who remains "steadfastly bullish" overall and positively disposed on major integrated oil companies is "less excited" about oil services firms, citing less compelling valuations.

Finally, as we head into the heart of earnings season, it's worth repeating that sell-side analysts expect just 2% year-over-year earnings growth for the energy sector, according to Thomson Financial vs. 4.4% for the S&P 500 overall.

This combination of factors, along with the prevailing positive sentiment for all things energy, suggest near-term weakness ahead for the sector, even if the long-term outlook remains upbeat. Not coincidentally, the same view applies to the broader market.