Briefly –
- Energy stocks trade at their lowest since the 2008 Financial Crisis.
- Market pricing slows economic growth and declines gas and oil demand.
- P/E ratio has plunged to 6.4 from 8.5 this year, whereas earnings estimates gained 64%.
Finding performing stocks this year has been a challenging task as the global market remained weak. Nevertheless, experienced market players can uncover some options, and the energy sector presents such opportunities. For instance, the Stoxx 600 Gas & Oil Index is 20% up even as the broad market slumped.
The Ukraine-Russia crisis contributed to energy sector gains. The war saw commodity prices skyrocketing. Nevertheless, the surging energy stock prices have a notable thing – increased forecasted earnings dwarf them.
Though the stocks gained 20%, predicted estimates increased by 63%. That has seen the P/E ratio dropping from early 2022 at 8.5 to the current 6.4. zerohedge.com’s graph shows energy stocks trading at their lowest levels since the 2008 Financial Crisis.
That shows the market isn’t on board with surging expectations by analysts. Moreover, it symbolizes the increasing pessimistic sentiment in the space, with market players anticipating slow economic growth to drop gas and oil demand and finally authorizing these lower multiples.
Another issue remains how sustainable the commodity prices rally is due to the unpredictable events of the Europe war and all its impacts, including financial sanctions by the western nations. It remains impossible to forecast Putin’s next move.
Moreover, there’s a continued discussion about the West’s reaction and how willing they’re to suspend energy flow from Russia, moves that would affect valuations severely. The financial market future depends on Putin’s next move and the West’s response.
Considering all this, plus the hiking dollar that might add fuel to the fire, it’s logical that valuations have declined. Bearish tendencies showcase even in the few performing stocks as meltdowns dominate all assets in the financial spectrum. For instance, that led to lower valuation in the energy sector, a trend that emerges amidst aggressive risk-off phases.
What are your thoughts about the current global economic spectrum? Feel free to leave a reply below.