This November was a good one for the market. The S&P 500 logged an 11% gain for the now-ended month, reversing losses logged during October as well as September. In fact, all of the major indices recently hit record highs.
It would be short-sighted, however, to overlook the fact that energy stocks did more than their fair share of this heavy lifting. S&P 500 components Occidental Petroleum (NYSE:OXY), Devon Energy (NYSE:DVN), and Diamondback Energy (NASDAQ:FANG) were each up more than 70% in November, leading the sector’s rebound from a rather rough October plunge. In fact, oil and gas stocks were more than ripe for a recovery this past month, having fallen nearly 40% from their June highs. The coronavirus pandemic really rattled the surprisingly sensitive energy market.
If you’re thinking this rebound marks the beginning of a bigger-picture recovery for oil and gas names, though, you may want to reconsider. The underlying dynamics of the sector still aren’t strong enough to get all of these companies meaningfully back in the black.
COVID-19 vaccines restore hope
Diamondback, Devon, and Occidental may have put up the biggest numbers, but by virtue of their bigger market caps, Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) boasted the bigger bullish impact on the S&P 500. They were up 32% and 24%, respectively, in November. As for crude oil itself, March’s short-lived low near $20 per barrel has since improved to $45.
The prod for at least the latter part of the month’s gains was the prospect of an end to the coronavirus pandemic. On Nov. 9, Pfizer announced that its vaccine co-developed with BioNTech was effective, and just a few days later, Moderna reported its candidate was a similarly effective vaccine against SARS-CoV-2 infections. Even AstraZeneca‘s solution holds promise despite questions over the company’s trial methodology. Surely one (or more) of them will finally get COVID-19 under control. That should ultimately help rekindle the need for gasoline and diesel fuel.
Then there’s the simple fact that energy stocks (along with oil prices) were just beaten down so badly through October — having failed to fully recover from the February-March plunge — that there’s plenty of room to recover.
It’s still not enough, however, to start making big bets on long-lived rebounds of these stocks. As enticing as those gains are, they’ve not proven to have any real staying power.
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