Energy stocks have seen a resurgence in 2024, with the S&P 500 index’s energy sector experiencing a 17% increase, making it the second best-performing category of the benchmark index. This comes after a lackluster year for energy stocks in 2023, as concerns about the global economy impacted energy demand. A surge in oil prices, driven by escalating tensions in the Middle East, has also contributed to the rise in energy stocks. Some investors believe that energy stocks are poised for further gains due to geopolitical turmoil and the resilience of the US economy. Additionally, energy stocks are currently trading at lower multiples relative to the rest of the market, making them an attractive investment option.
The Federal Reserve’s decision to likely not cut interest rates until the second half of the year has led to speculation about the impact on stocks. While elevated rates are generally viewed as negative for most stocks, oil and gas companies tend to perform well in such environments. The energy sector has historically shown a higher propensity to outperform when interest rates are high. Factors such as production cuts by OPEC and geopolitical tensions are also expected to support crude oil prices, further benefiting energy stocks. Clean energy companies, on the other hand, have faced challenges in 2024, with high borrowing costs impacting their performance.
Former President Donald Trump’s proposed tariffs, if enacted, could potentially trigger a new trade war with China and other nations. Economists warn that such policies could harm the US economy, worsening inflation, killing jobs, depressing growth, and unsettling investors. They fear that these actions could set the stage for a recession, as tariffs are known to make consumers poorer and shrink the economy. Trump’s aggressive trade strategy, if implemented, could be one of the most damaging aspects of his economic agenda.
The Producer Price Index, a key measure of inflation at the wholesale level, increased at its fastest pace since April 2023, indicating persistent underlying price pressures. While the annual increase of 2.1% was slightly lower than expected, the rise in prices paid by producers for goods and services underscores ongoing inflation concerns. The monthly increase in US wholesale prices was slower than the previous month, with the core index showing a consecutive rise for the third month in a row. Economists project that core PPI will continue to rise, potentially impacting interest rates and inflation expectations. Overall, the data highlights the challenges in curbing inflation and the implications for monetary policy.
