2021’s Hottest Sector Is…

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While I was filling up my car’s gas tank the other day, I noticed something different: The price per gallon started with a three rather than a two.

Of course, paying $3 a gallon for gas isn’t anything new. We saw those prices — and higher — for years during the late 2000s and early 2010s.

But that was a while ago. Gas hasn’t been this expensive since 2014.

120 month average retail price chart

(Source: GasBuddy.)

You don’t need a fancy chart to tell you that gas prices are soaring, though. I’ve been feeling the pain at the pump, and I’m sure you have too (unless you drive an electric car, anyway).

But for one sector of the economy, the rising cost of gas has been an incredible windfall in the first half of 2021…

Oil Companies Roared Back to Life This Year

At the start of the global pandemic, businesses and factories shut down, and people were stuck in their homes.

Gas prices plunged below $2 a gallon due to low demand.

The Energy Select Sector SPDR Fund (NYSE: XLE), which holds shares of oil giants such as Exxon Mobil and Chevron, lost over 50% of its value in less than a month.

But thanks to vaccinations and the economic recovery, people are driving and traveling again … and oil and gas companies have roared back to life.

XLE soared 27% in the first two months of 2021, while the S&P 500 Index only gained 1.4% over the same time frame.

The stock market performed better from March through June. But energy was still, by far, the hottest sector in the first half of 2021.

first half 2021 sector return chart

Note that the gains in the chart above include dividends. XLE has a solid 4% yield today, while the SPDR S&P 500 ETF (NYSE: SPY) only yields 1.3%.

Here’s What’s Ahead for the Energy Sector

XLE’s outperformance earlier this year came as the oil industry rebounded from a devasting 2020.

So, don’t expect its gains in the second half of 2021 to be nearly as impressive.

Plus, just last week, President Joe Biden pledged to end $90 billion in tax breaks for fossil-fuel businesses.

That change would shrink oil companies’ profit margins, making them less appealing to investors.

But the biggest threat to the oil industry comes from the growing popularity of electric vehicles (EVs).

As I pointed out in June, global EV sales totaled over 3 million last year — a 40% increase from 2019.

And Biden’s infrastructure plan earmarks $174 billion in funding for EV projects across the U.S., which would further accelerate EV adoption.

In fact, according to Ian King, a future full of electric, self-driving cars is closer than most people expect.

Ian says this mobility revolution will change everything. To find out why, click here to watch his new presentation.

Regards,

Jay Goldberg

Assistant Managing Editor, Banyan Hill Publishing

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