Energy Surge Relative to Industrials

Each day in our Sector Snapshot, we provide an update on each sector’s weighting within the S&P 500.  Given the astounding rally in Energy stocks, the sector has gone from a record low weighting of only 1.9% in November 2020 up to a high of 4.9% last week. That is back to levels seen in the summer of 2019, and it’s also a level consistent with what we saw in the late 1990s through the first few years of the 2000s. Of course, the larger a sector’s weighting, the more impact its moves have on the broader S&P 500.

Meanwhile, another traditionally cyclical group, the Industrials, has seen its weighting steadily decline. At only 7.76%, the current reading is only about 0.3 percentage points above the pandemic low in weight which also marked a record low going back to at least 1990.  Historically, Industrials have had less dramatic fluctuations in weight than Energy, but it has seen a consistent grind lower over the decades, reflecting the broader shift in the US economy from predominately goods to service-based.

Energy vs Industrials Stocks

In an earlier post, we noted how two of the biggest stocks in the Energy sector by market cap, Exxon Mobil (XOM) and Chevron (CVX), have seen explosive and unprecedentedly large moves higher over the past couple of years.  This is the first time these stocks have seen their market caps rise in any sort of a significant manner since the mid-2000s.  As shown below, the two now account for nearly three-quarters of a trillion dollars in market cap, surpassing the previous peak in late 2007. That accounts for roughly 44% of the total size of the S&P 500 Energy sector as well.

Below we compare the combined market caps of XOM and CVX to what have historically been two of the most prominent stocks in the Industrials sector: Boeing (BA) and General Electric (GE).  Right around 2000, these two stocks had a combined market cap of ~$650 billion.  Over the two decades since then, these two stocks have fallen from grace with their current market caps now totaling just $163.9 billion!  Relative to the market cap gains of Exxon Mobil and Chevron, the recent move has been nothing short of exponential as shown in the second chart below.  The only comparable period was in 2009 when both groups fell, but the Industrial names were hit much harder.

As we discussed in regards to Tech stocks now versus the Dot Com Peak in March of 2000 in last week’s Bespoke Report (pages 20 & 21), the big declines in the size of GE and BA as XOM and CVX rocket higher are yet more examples of the ebb and flow of market leadership.  Click here to learn more about Bespoke’s premium stock market research service.


Biggest Energy Names See Record Moves

The Energy sector has been on an absolute tear over the pandemic period with a 273% gain since the pandemic lows in March 2020. During the overall market downturn of the past several months, it is the only cyclical sector to have managed to retain its uptrend as it has rallied over 60% year to date compared to a 13% decline for the S&P 500. Taking a look through our Chart Scanner tool, there is not too much variation in the charts of large-cap Energy stocks with strong uptrends across the board and many new multi-year highs as a result.  Taking a look at two of the largest members who account for nearly three-quarters of a trillion dollars in market cap, Exxon Mobil (XOM) and Chevron (CVX) are good examples.  CVX has reached new all-time highs following its meteoric rise over the past couple of years while XOM has recovered most of the past decade’s declines. Additionally, we would note that XOM has historically tended to be much larger than CVX, but the pandemic and the subsequent rally over the past couple of years have brought the two stocks’ market caps much more closely in line with one another.

Chevron (CVX) and Exxon (XOM)

Both long-standing staples of the Energy sector, XOM and CVX are also notable in that they are both dividend aristocrats (a group of stocks that have now raised their dividend annually for 25 or more consecutive years). That means on top of massive capital gains, investors have also been rewarded handsomely with dividends.  Even after these massive rallies, CVX still yields 3.25% and XOM pays an even better 3.67%.  Taking this into account, the two-year runs including dividends that these stocks have been on are unlike anything observed since at least the early 1980s.  Given the record two-year run we’ve seen in the Energy space, it’s tough to get super bullish on this area of the market now.  Remember, we saw an explosive move higher like this for other areas of the market earlier on in the post-pandemic era (think meme stocks, SPACs, high growth, etc.), but once the tide turned in late 2021, the downside reversal was just as extreme.  Energy stocks have completely different fundamental risk profiles than aggressively valued Tech stocks, and ultimately their performance is mostly tied to the price of oil.  That being said, investor psychology and herd mentality work the same regardless of the asset class.  Click here to learn more about Bespoke’s premium stock market research service.

XOM and CVX performance