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Energy
| The Energy Sector comprises companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy related service and equipment, including seismic data collection. Companies engaged in the exploration, production, marketing, refining and/or transportation of oil and gas products, coal and other consumable fuels. |
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Actual market weightings for each sector are based on the S&P 1500.
**The Market Analysis, Research and Education (MARE) group is a unit of Fidelity Management & Research LLC.
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Sector Commentary from Standard & Poor's
11/15/2009
S&P recommends overweighting the S&P 500 Energy sector. Year to date through October 23, the S&P Energy Index, which represented 12.4% of the S&P 500 Index, was up 14.3%, compared to a 19.5% increase for the S&P 500. In 2008, this sector index fell 35.9%, versus a 38.5% decrease for the 500. There are seven sub-industry indices in this sector, with Integrated Oil & Gas by far the largest at 59.7% of the sector's market value.
S&P Equity analysts have a positive fundamental outlook for the Energy sector. This reflects a positive 12-month forward fundamental outlook on the Integrated Oil & Gas sub-industry, which dominates the sector's market cap. In addition, S&P analysts forecast WTI crude oil will average $71.82/bbl. in 2010, rising to $77.38/bbl. in 2011. We believe the recent sharp decline in upstream capital spending should lead to longer-term supply constraints that we think will boost oil prices as demand gradually recovers next year. S&P analysts forecast that the sector's EPS will decline 67% in 2009, but then rebound 88% in 2010 on favorable comps and higher oil prices. The sector trades at a multiple of 13.9X estimated 2010 earnings, below the projected 14.6X P/E of the S&P 500. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 2.4X is above the broader market's 1.5X. This sector's marketweighted S&P STARS average of 4.2 (out of 5.0) is above the S&P 500's average of 3.7.
The S&P GICS Energy Index has finally completed a bullish, inverse head-and-shoulders reversal pattern as it was able to break strongly above tough chart resistance at 420. This break above 420 turns the intermediate- to long-term trend back to bullish from neutral. In addition, the 17-week exponential average closed above the 43-week average, and this moving average crossover buy signal confirms to us that the intermediate- to longer-term trend has turned bullish. Relative strength versus the 500 is still in an intermediate-term downtrend, but has rebounded sharply in October and overtaken its 100-week exponential moving average. We have raised our technical opinion on the Energy sector to neutral with a bullish bias, from neutral.
In all, we recommend overweighting the Energy sector as we think the sector's earnings will rebound sharply in 2010 as oil prices benefit from recent chronic underinvestment in upstream capacity infrastructure, which risks crimping supply at a time of gradually recovering global demand.