From the desk of Willie Delwiche.
Key Takeaway: US stocks are on the ropes after taking a series of heavy hits in recent weeks. This comes against a backdrop of rising volatility and fear, fueling an increase in pessimism. A complete unwind from speculative extremes is underway as a market that once bent under pressure is now beginning to snap. The silver lining is that there are still pockets of strength among cyclical/value sectors, like energy. The question is whether or not this can remain the case in the face of widespread pessimism.
The energy sector is picking up steam despite the recent selling pressure among US stocks. The sector is having a great month to start the year (+17%) and this week saw one of the largest 1-day return spreads between XLE and XLK on record (22nd overall). In fact, seven of the top 25 events have come since the COVID-related market lows. After taking a backseat to tech for more than a decade, energy led the market last year and is on track to do the same in 2022.