US Energy: Pensive Recovery or Primed and Ready?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

The energy sector has stumbled a bit after recovering to near pre-pandemic levels earlier this summer. With a new White House administration emphasizing renewable energy and uncertainty in the status of global reopening plans, the U.S. energy sector doesn’t exactly know where it’s headed. 

Energy companies see the writing on the wall when it comes to carbon emissions sensitivity and many have released plans to be net carbon zero by 2050. This shift, however, won’t come quickly, and there will be winners and losers along the way. Picking those winners and avoiding the losers can be a lucrative but challenging proposition for traders. Instead, it may make more sense to look at the movement of the energy sector as a whole.

There’s an Index for That

Standard & Poor’s (S&P) Energy Select Sector Index IXE allows investors to gauge the overall sentiment of the energy sector by aggregating 22 of the largest U.S. energy companies into one index. This index reflects the recent consolidation that the energy companies have experienced since the middle part of July. However, the sector is in a longer-term uptrend, riding the post-pandemic recovery wave. 

Therefore, bullish investors may see this consolidation as a good entry point, believing that energy is poised for continued upward movement into the fall. That bullish sentiment is further bolstered by lenders who seem happy to continue lending to energy companies, believing that the second half of 2021 will see a generous uptick in energy consumption as reopening efforts continue to drive demand. 

For traders looking to make this bullish play, there is Direxion’s Daily Energy Bull 2X Shares ERX. This exchange-traded fund (ETF) is based on the S&P Energy Select Sector Index and gives traders 2 times daily leveraged exposure to the top names in U.S. energy production.

Leaner and Cleaner is the Name of the Game

Looking ahead to the future of energy production, there’s no mistaking that changes are looming on the horizon. Energy companies across the board will need to be both leaner and cleaner. This means investing capital into partnerships and joint ventures with clean energy companies as well as innovating internally. Business models will also change. As the need for efficiency grows, digitalization will be an increasingly important driver in that process. 
One great example of these trends is Phillips 66 PSX, a member of the S&P Energy Index. Phillips 66 recently announced an investment into Novonix, an Australian-based materials supplier for lithium-ion batteries. In a press release, Greg Garland, chairman and CEO of Phillips 66 said, “This strategic investment enables Phillips 66 to directly support the development of the U.S. battery supply chain.” Such innovation and vision from members of the S&P Energy Select Sector Index is a good indication that these companies don’t plan on staying stagnant as the ground shifts below them.

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ERX Top 10 Index Holdings (as of 06/30/2021)

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Photo by Alex Simpson on Unsplash

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.