Energy Has 99 Problems but the Dollar Ain’t One

“Ian, If the dollar rally's higher from here, what do we think that does for energy stocks?”

Stellar question!

Let’s start with the commodity subgroup performance since the dollar peaked last fall up until the recent breakdown on July 13th:

Energy was the worst-performing commodity group as the US dollar fell. It’s not even close.

So we know Crude and the gang couldn’t care less about a weaker dollar…  

While Energy stocks measured by the Energy Sector ETF $XLE have gained over 15% during the same period, they haven’t gone anywhere since last summer.

On the other hand, energy commodities began to rise following a key pivot low in the US 10-year yield in early May.

Check out the difference in the performance profile from the first chart:

It’s night and day.

Our energy index has gained more than 25% as the US benchmark rate turned higher.

Energy contracts and their related stocks are clearly more sensitive to fluctuations in yields than the US dollar. 

A strong dollar isn’t a problem for energy stocks. But declining interest rates could prove troublesome.

Hit me!

Please, keep the questions and observations coming.

You all are the smart money. And together, we all benefit.

Thanks for reading. And enjoy the weekend.

– Ian