Utilities & Energy Weekly Summary

Mike Zaccardi, CFA, CMT

First of all - happy summer solstice! What better way to kick off the season than by checking out the week that was in the utilities & energy complex?

WTI crude oil surged 10% last week as a general sense of optimism regarding the global economic recovery permeated the markets, though sharp daily increases in new COVID-19 cases along the southern tier of the US left many traders doubting the rally.

Natural gas prices fell nearly 4% as oil rose. We have seen the inverse correlation recently as the higher oil prices go, the more incentive producers have to keep drilling away for oil & gas. Associated natural gas is of course nearly free when producing crude oil in the shale regions of the country thanks to fracking technology.

In the equities spaces, utility stocks had a rough go of it while the S&P 500 jumped last week. XLU fell 2%, getting hit hard on Friday despite interest rates remaining quite low. The benchmark US 10-year yield remains near the 70 basis points mark. The energy sector ETF, XLE, fell just 0.6%.

In other niche areas that I monitor, the solar ETF (TAN) had a stellar week, climbing more than 3% as the push for renewables received another boost from BP who reported they would focus more on renewable generation versus coal, gas, and oil in the coming years and decades.

The wind ETF (FAN) was also up, but just 1%. MLPs, very dividend-heavy (and hence riskier in a way due to cash flow issues right now among its company holdings), were up 2%. Oil & gas producers ETF fell more than 3% as a big jump in oil prices did little for oil stocks.

Looking ahead, the market will closely monitor the ongoing situation regarding COVID-19. Forget fears of a second wave – many parts of the nation, namely southern states and California, are still struggling with the first wave. The widely-followed IMHE model now projects more than 200,000 deaths from the virus by October 1.

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Chart used with permission from Tradingview.com