Investors eye energy sector as Delta gauge

Energy stocks are becoming a popular bellwether for concerns over how deeply the Delta variant of the coronavirus is expected to impact the US economy, as the so-called reopening trade that boosted some parts of the market earlier this year continues to stumble.

The S&P 500 energy sector is down 12.3 per cent for the quarter-to-date compared with a 3.7 per cent gain for the S&P 500, which stands near record highs. That contrasts with the sectors performance in the first quarter of the year, when it zoomed 29.3 per cent on expectations that a vaccinefuelled economic rebound will boost energy demand.

US recovery peaked?

The decline, which has outstripped a 2 per cent fall in the price of Brent crude, suggests some investors believe the US economic recovery may have peaked in the face of a coronavirus resurgence, leading them to focus on a looming unwind of easy money policies.

“The rise of the number of cases of the delta variant has led to a resumption of the outperformance of stay at home defensive stocks like tech,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab.