Fund managers have shown a significant decrease in exposure to energy stocks heading into 2024, reaching the lowest levels since December 2020, as revealed by the Bank of America Global Fund Managers Survey. This shift in sentiment comes alongside slipping energy prices, resulting in a decline of 11% in exposure to energy stocks compared to their benchmarks in November. In contrast, fund managers had 23% more exposure to tech stocks than their benchmarks.
The situation worsened when Saudi Arabia reduced its selling price for oil, causing Brent crude, the international benchmark, to plummet by 3.9% to $75.73 per barrel. Natural gas prices also experienced a decline of 4.4%. As a result, the Energy Select Sector SPDR exchange-traded fund suffered a 3% decline, while Exxon Mobil and Chevron saw drops of 2.8% and 1.7%, respectively.
However, being out of favor doesn’t always spell doom for stocks. In fact, investors who purchased energy stocks in December 2020, when they were equally unpopular, witnessed significant gains. The SPDR ETF rose by an impressive 53% from December 2020 to December 2021.
Despite the prevailing pessimism, one analyst believes that investors may be making a mistake. Roth MKM analyst Leo Mariani argues that fund managers are excessively bearish due to their belief that oil demand is rapidly declining. Mariani anticipates a pickup in demand and projects an average Brent crude price of $85 per barrel in 2024. In light of this, he advises against underweighting energy investments at this time.
Last Week
Markets
Last week, congressional leaders reached a spending deal, with only two weeks remaining to pass the full package. The oil market experienced fluctuations as prices fell due to Saudi price cuts but surged following airstrikes in the Red Sea. Both core inflation and consumer prices saw slight increases. In terms of market performance, the Dow Jones Industrial Average rose by 0.34%, the S&P 500 increased by 1.84%, and the Nasdaq Composite outperformed with a 3.1% rise.
Companies
The U.S. and five allies conducted airstrikes against Iran-backed Houthis in Yemen, who posed a threat to Red Sea shipping. Boeing encountered a setback when one of its MAX 9 jets experienced a blown-out door, resulting in grounding measures. CEO David Calhoun admitted the incident was a “mistake.” Additionally, the SEC’s X account was hacked on Tuesday, falsely claiming the approval of a spot Bitcoin ETF. However, on Wednesday, the SEC did approve 11 Bitcoin funds, which subsequently commenced trading.
Deals
In a recent deal reported by The Wall Street Journal, Hewlett Packard Enterprise has made a significant move by acquiring Juniper Networks for a staggering $14 billion. On the pharmaceutical front, there has been a flurry of acquisitions, with GSK acquiring the three-month-old respiratory specialist Aiolos Bio for $1.4 billion, Merck agreeing to purchase Harpoon Therapeutics for $680 million, and Johnson & Johnson securing Ambrx Biopharma for $2 billion. Amedisys shareholders have given their approval for the $3.3 billion takeover by UnitedHealth, which is currently under regulatory scrutiny. In another notable deal, Boston Scientific has acquired Axonics for $3.7 billion, and Chesapeake Energy is merging with Southwestern for a whopping $7.4 billion. Additionally, BlackRock has announced its acquisition of Global Infrastructure Partners, including its impressive $106 billion in assets, for $12.4 billion.
Next Week
Monday 1/15 Equity and fixed-income markets are closed in observance of Martin Luther King Jr. Day.
Tuesday 1/16 The start of the fourth-quarter earnings season brings a wave of financial companies reporting their results. Goldman Sachs Group, Morgan Stanley, and PNC Financial Services Group are among the early reporters on Tuesday. Charles Schwab, Discover Financial Services, and U.S. Bancorp will follow suit on Wednesday. Truist Financial will report on Thursday, while Fifth Third Bancorp and State Street will close out the week on Friday.
Wednesday 1/17 The Census Bureau is scheduled to release retail sales data for December. The consensus estimate suggests a 0.4% month-over-month increase in U.S. retail and food services sales, following a 0.3% rise in November. When excluding auto sales, retail sales are expected to match the 0.2% growth observed in November.
Friday 1/19 The University of Michigan will release its Consumer Sentiment survey for January. In December, consumers’ expectations for year-ahead inflation stood at 3.1%, representing the lowest level since March of 2021.
