Sector is no longer top performer in S&P 500; Exxon Mobil's market cap slips $11 billion

By Daniel Huang 

Volatility in the stock market has shaken up even one of this year's big winners.

Energy shares tumbled Tuesday, ending the sector's brief run as the biggest gainer in the S&P 500 so far this year. Shares of Chevron Corp. fell $2.82, or 2.8%, to $99.43. Exxon Mobil Corp. lost 2.08, or 2.4%, to 85.21, shaving $8.6 billion off its market cap, according to WSJ Market Data Group.

Energy companies fell more than the broader stock market in a selloff that dragged down all 10 major sectors of the S&P 500, as well as crude-oil prices and government bonds. It was the third straight turbulent session, raising concerns that months of calm have given way to a period of volatility. Stocks and bonds fell sharply Friday as investors worried that central banks could dial back their easy-money policies. Markets stabilized Monday but declines picked up again Tuesday.

In a downdraft like this, "there's literally no place to hide," said Ted Weisberg, trader at Seaport Securities.

The moves also prolong a period of swings for the energy sector as investors grapple with its outlook.

Energy stocks have risen roughly 12% in the S&P 500 so far this year as many investors bet that oil prices had bottomed and energy firms' earnings were poised for a rebound. For three sessions through Monday, energy's year-to-date gains were the biggest of any sector. The S&P 500 is up 4.1% so far this year.

"When you've had a sector experience the bludgeoning that oil has had, at the first whiff of improvement it's natural to see a rally as powerful as the one that we've had," said Eric Nuttall, a portfolio manager at Sprott Asset Management. He added that he expects a tightening global oil supply and a slowly improving economic backdrop to benefit energy firms.

"Any earnings this year is backward looking," said Mr. Nuttall. "We're looking out to 2017."

Analysts expect earnings to contract in the third quarter from a year earlier, but not as sharply as in previous quarters, according to FactSet. Revenue declines are also expected to moderate.

U.S. crude-oil prices have stabilized in recent months, and are near where they were during the comparable period last year. U.S. oil prices averaged $46.50 a barrel in the third quarter of 2015.

Still, energy companies are forecast to report the worst earnings of any of the S&P 500's sectors in the third quarter -- a 66% drop from a year ago, according to analysts polled by FactSet as of Friday. Stripping out energy firms, the S&P 500's estimated earnings growth would improve to 1.2% from minus-2.0%.

And while U.S. crude-oil prices have rebounded from multiyear lows, they are still down nearly 70% from their 2008 high as concerns persist about a global glut. Oil prices slid Tuesday after the International Energy Agency said the slowdown in global oil demand growth has accelerated. U.S. crude prices fell 3% to $44.90 a barrel, their lowest settlement since Sept. 6.

It has been a similarly bumpy ride for energy shares.

The sector had its 40th daily move of 2% or more this year Tuesday, compared with eight such swings for the S&P 500.

Shares of Southwestern Energy Company, the sector's top gainer in percentage terms this year, have risen 100% to $14.19, though the price remains less than half its level two years ago.

A lack of opportunities elsewhere in the market has added to investors' reasons for pushing into energy, said Bill Herbert, head of energy research at Simmons & Co. International.

"It's not that they're enamored with the current value proposition of energy," he said. "The elephant in the room is that people are hungry for yield."

Write to Daniel Huang at dan.huang@wsj.com

 

(END) Dow Jones Newswires

September 15, 2016 02:47 ET (06:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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