2022's Best-Performing Sector Just Hit Bear Market Territory

Slow Start: 2022 has been a brutal year for stocks. In fact, the first six months of the year were the worst first six months for the stock market in more than 50 years, according to NPR. 

But, for most of the year, there has been one “flight-to-safety” sector that investors, from retail traders to Warren Buffett, rushed to: energy. Stocks like Peabody Energy Corp BTU, a leading coal company, have a positive return of more than 100% throughout the last year. 

Bear Down: But, with the recent sell-off in oil, energy stocks have largely given back their gains, dragging the energy sector into the same bear cave in which the other sectors have been residing. Some traders and investors predicted this, that as recession fears mount, oil will eventually have to retreat as demand for petroleum decreases in recessionary times. 

The Energy Select Sector SPDR Fund XLE, one of Wall Street’s favorite indexes to track the energy market, has fallen more than 23% during the past month. While that puts the sector officially in bear-market territory, the XLE is still up nearly 20% YTD, and nearly 30% higher in the last year. 

Some traders, including Mark Dow, founder of Dow Global Investments, see this recent correction in the energy market as a buying opportunity. 

“Unprecedented Times”: Like virtually every other sector, there is a myriad of uncertainties surrounding the energy industry that is making it hard for analysts to make directional predictions about the price of oil. 

Recently, analysts at J.P. Morgan said that oil could reach as high as $380 a barrel, while Citi analysts stated that prices could drop to $65 a barrel, a more than 30% decrease from its current prices.

The large discrepancy in price targets shows the difficulty in predicting the future in this macro environment driven by global inflation fears, recession risks and a war in Russia and Ukraine.