Morgan Stanley (NYSE:MS) drilled into the energy sector with a note Monday that lowered price targets on many energy names. This dragged the XLE (NYSE:XLE) energy ETF down almost 1 percent on a day when geopolitical tensions increased as U.S. President Donald Trump imposed new sanctions on Iran, one of the world’s key oil producers.
The energy sector has seen an 8-percent rally in June, with the XLE up 10 percent year-to-date after falling from its year to date highs in April.
WallachBeth’s Andrew McOrmond said Monday on CNBC’s “ETF Edge” that the fundamentals are looking a little too slick for energy names. He points out that the XOP, the oil and gas exploration ETF, has actually seen a bigger gap with oil in the last few days than normal.
“In last five days, (the XOP) has gapped at a 6-percent spread from oil, and traditionally that’s 1 percent,” he said. “I think that’s been dragging down these ETFs.”
Since 2007, energy stock’s weighting in the S&P 500 dropped from 15 percent of the index’s stocks to just 5 percent today. DataTrek’s Nick Colas says given the outlook for oil and energy stocks, that’s the exactly how investors should be weighing the sector in their portfolios.
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