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WSJ Your Money Briefing
Energy Stocks Soar to Begin 2019
00:05:56
The energy sector, among the most battered of all stocks in 2018, has raced out to substantial gains in 2019, and clocks in as the best-performing sector in the S&P 500 so far this year. Wall Street Journal reporter Jessica Menton has analysis.
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- [00:01]
A
Still running global payroll like a relay race Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you Already use Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.
- [00:36]
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With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. After disastrous 2018, energy stocks are on the rise big time in 2019. We'll tell you how much higher they're likely to go in a moment. First, these money and market stories. You should know the number of Americans eligible for overtime pay at work could change under a new proposal sent to the White House by the Labor Department. Now, details of the proposal have not been made public yet, but Labor Secretary Alexander Acosta has told Congress he was in favor of lifting the annual salary threshold from the $23,660 level set in 2004. That threshold is the level below which a worker must be paid time and a half. The new threshold is expected to come in at about $32,000 a year in young people who do low cost childcare work for American families, who are also known as being an au pair, will share in a proposed $65.5 million settlement of a lawsuit brought by a dozen former workers against the companies that bring the workers to the U.S. they claim the companies colluded to keep their wages low, ignored overtime and ignored state minimum wage laws. And then, the lawsuit says in some cases, families push the limits of their duties, requiring them to do things like gardening, forbidding all pairs from eating with a family, help families move and feed backyard chickens. So far, 2019 has been a good year on Wall Street. But one sector that's been particularly on fire is energy, up nearly 8.5% in the first six trading days of the year. Wall Street Journal reporter Jessica Minton is here to explain why and let us know whether the sector has more room to grow. So Jessica, sector was beaten down so severely last year, in fact, it really didn't even take part in the market run up in the first three quarters of 2018.
- [02:34]
C
Exactly. And something that's a bit interesting about that is because there is typically this correlation between how oil prices are performing and thus how energy equities will do. And they really didn't take part of that. But when you look towards the tail end of last year, once oil prices were in a bear market, you clearly saw the declines there in energy stocks. And that really, I think, was just the fact that when it comes to that space, the sentiment can shift quite quickly.
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B
And everything did shift. In fact, energy is the best performing group of stocks so far in 2019. What has brought this sector back to life?
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C
A lot of it is really driven to the fact that these stocks have been beaten down so much that their valuations look a bit more attractive right now to investors. And if you break down sort of what was happening in the subgroups of energy, energy service providers were really banged up last year just because of the bottlenecks in the Permian Basin. So that's something especially ahead of earnings season that a lot of investors are going to watch.
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B
So it was the flow of energy from the Permian Basin that was affecting the pricing?
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C
Yes, and it was going into their earnings expectations. But if you look further out beyond 2020, some of those issues are supposed to resolve themselves.
- [03:55]
B
And in terms of earnings in 2019, investors should expect to see some strong numbers during earnings season.
- [04:01]
C
When you look at the fourth quarter, based on our numbers we've been pulling from FactSet, earnings companies are projected to rise 73% when you're looking at earnings growth for those companies in the s and P500. And when you look at the S and P overall, excluding that sector, the groups are supposed to rise a little over 8%. So that's quite a bit of a difference there.
- [04:24]
B
Energy sector, 73%. It shows you how beaten down that group was.
- [04:29]
C
Yes. Another side to that is even going forward, when you think about the earnings projections that have been downgraded just because of the particular stimulus we're not going to have this year compared to last year. Overall, if you look at all the sectors, they are going to be lower in 2019.
- [04:45]
B
And you spotlight some offshore drillers in your Wall Street Journal story, some of which are up significantly, but they still have a long way to go when you consider how beaten down they were so much last year.
- [04:57]
C
Yes. When you look at Transocean, Rowan Tidewater, those have really been standouts so far this year, but they were beaten down quite a bit and lost a lot of their value. When you look back towards the beginning of October to now, just looking at especially the volatility that we saw that quarter. But people are seeing opportunities there and they want to. It's sort of this battle of where do you think oil prices are going to go? And that's exactly why what a portfolio manager was telling me yesterday, it's sort of well, if you expect oil prices to go down further, then energy stocks still look expensive to you. But if you expect oil to rally going forward, then you would want to step in and buy energy equities right now.
- [05:41]
B
Well, the Saudis have said they're going to cut back on supply, which could drive prices higher. So that actually could come to pass.
- [05:47]
C
Yes. And that's really what's been driving the rally so far this year when you're looking at US Oil prices and global oil prices. Another side to that is really the fact that some of the global growth concerns have eased a little bit. I'm sure that will come to the forefront again once we get some more economic data. But those two things that really weighed on oil prices in the last quarter have eased a little bit and that's why the sentiment has shifted to be a little bit more positive right now.
- [06:17]
B
All right. That is Wall Street Journal reporter Jessica Mention joining us here in our studio. Jessica, thanks for being with us.
- [06:22]
C
Thanks for having me.
- [06:23]
B
And that's your money briefing. Hi, I'm Shay R. Whelan in New York for the Wall Street Journal.
- [06:28]
A
Still running global payroll like a relay race deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you Already use Workday SAP Netsuite operate like a local everywhere visit d e l.com WSJ that's d e e l com WSJ.