Could energy lead the stock market higher in 2022?

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Wall Street saw a slight slowdown close to what was otherwise a good week. Investors were happy to see sentiment pick up after a difficult September, but after several days of strong gains, Friday dragged down slightly as the holiday weekend approached. The Dow Jones Industrial Average (DJINDICES: ^ DJI), S&P 500 (SNPINDEX: ^ GSPC), and Nasdaq Composite (NASDAQINDEX: ^ IXIC) were all inferior, the Nasdaq underperforming the others.

Index

Daily percentage change

Daily point change

Dow

(0.03%)

(9)

S&P 500

(0.19%)

(8)

Nasdaq

(0.51%)

(74)

Data source: Yahoo! Finance.

Even with major indices down slightly, the energy sector continued to outperform on Friday. This makes sense given the current dynamics in the oil and gas market, but the big question for many investors is whether the gains could last not only for the rest of the year, but also for the rest of the year. next year.

Image source: Getty Images.

More energy savings

Basically, just about all major oil and gas stocks draw inspiration from the commodities markets. Oil prices gained ground again on Friday, with a 1.5% gain bringing the price to nearly $ 80 a barrel for West Texas Intermediate. Global markets have already offered Brent crude above the $ 80 per barrel mark. On the natural gas side, futures prices have eased slightly today, but prices remain at considerably high levels from where they were just a few weeks ago.

The ramifications of $ 80 a barrel of oil are very positive for energy stocks. Even the giants ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) posted significant gains of 2% to 3% on Friday, as investors were more excited about the prospects of higher profit margins and better support for their lucrative dividend payments. Small businesses recorded even larger gains, such as Hess (NYSE: HES) and APA (NASDAQ: APA) with their increase of nearly 7% on Friday.

Further down the supply chain, oil service companies also benefit from a more favorable environment. Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL), and Baker Hugues (NYSE: BKR) were all up around 2% on Friday as investors expect higher prices to spur new capital investment which should in turn drive demand for the products and services provided by these companies.

Investors have also seen mid-size energy companies post gains on hopes that increased production will lead to more oil and natural gas being transported through pipelines. Kinder Morgan (NYSE: KMI) climbed by more than 3%, while Enbridge (NYSE: ENB) and Enterprise Product Partners (NYSE: EPD) increased between 1% and 2%.

And after?

It’s hard to believe that it was only last year that oil prices were briefly negative in the futures markets. Yet, as many expected at the time, the dramatically reduced energy demand was only temporary, and consumers and industrial users bounced back with vengeance once the realities of the pandemic gave them the opportunity to do so.

As a result, more and more experts are starting to predict even bigger gains for the energy market. Even the $ 100 oil forecast has started to emerge again, and that could mean even bigger gains for all stocks in the sector. In addition, due to industry consolidation, the total market capitalization of energy stocks is relatively small compared to other sectors of the market, and if capital starts pouring into the region, it could lead to a further boom. most important.

In the long run, of course, there are challenges for fossil fuel-based businesses, and oil prices tend to cycle. Still, when you look at the rest of 2021 and into 2022, there is ample opportunity for the energy market to push stocks higher.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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