Investors Turn Bullish On Energy Stocks Despite Wall Street Skepticism: Portfolio Allocations Increase

Investor sentiment towards oil and gas stocks seems to be on the rise, contradicting Wall Street’s cautious outlook.

What Happened: Bank of America strategist Michael Hartnett, in a note, indicated that fund managers have been progressively favoring energy stocks in October. As per Bloomberg, the allocation to energy stocks has seen an upswing from a 1% underweight position to an 8% overweight position. Hartnett noted that this shift draws funds away from staples and utilities and redirects them towards commodities and energy.

Wall Street experts seem skeptical about the sector’s ability to sustain this growth.

The S&P 500 Energy Index, as tracked by the Energy Select Sector SPDR Fund XLE, has risen by 19% since June, quadrupling the broader market’s advance, leading to analysts’ concerns. In comparison, energy stocks had underperformed in the first semester of the year.

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Analysts such as Bernstein’s Bob Brackett have downgraded multiple shale-oil firms, including EOG Resources Inc. EOG and Devon Energy Corp. DVN. Brackett believes the sector is heading towards a late cycle and recommends investors to be more discerning in their energy investments.

Nevertheless, the 23% surge in oil prices since July is hard for energy investors to ignore, leading some strategists to predict that equities will mirror crude’s gains.

Why It Matters: The shift in investment attitudes towards energy stocks, despite Wall Street’s caution, underscores the impact of recent oil price hikes. The increase in oil prices appears to have fueled a bullish sentiment among investors, who anticipate that equities will follow suit.

However, the contrasting views of industry analysts point to a volatile and uncertain future for the energy sector. As the market dynamics continue to evolve, investors and analysts alike will be paying close attention to how these trends play out in the coming months.

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