• June 5, 2023

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Six months and what a difference.

After years of perpetually rallying the tech heavy Nasdaq has slumped. Actually, its worse than that.

Yet during same period the energy sector has soared.

The Invesco
(Ticker: QQQ) exchange-traded fund lost approximately 29% in the year through June 29.

Meanwhile, the iShares U.S. Aerospace & Defense ETF (ticker: ITA) gained 36% over the same period, according to data from Yahoo Finance. These figures, for both funds, are unlikely to change materially by the end of trading today.

That means energy outperformed tech by 65% in just six months.


So what to do? As long as the war in Ukraine continues, and the Fed keeps hiking interest rates, then stick with the energy sector and avoid the tech stocks.

I spoke with a portfolio manager earlier this week who said that a cease fire between the Ukraine and Russia would likely knock $30 off the price of a barrel of Brent crude. In that situation the recent price of $115 a barrel would fall 26% to $85. Eventually that would filter through to market for gasoline and diesel fuel.

True peace between the two might lower it further especially if the West’s sanctions on Russia/Russian Oligarchs get lifted.

The good news about a cease fire is that it could help lower the cost of gasoline and all the products that gets shipped using diesel-fueled trucks across the country.

In turn, that might mitigate some of the cost of living increases we’ve seen recently.

However, for the time being its hard to see how oil prices drop significantly any time soon without some drastic action. For instance, the White House could lift bans on drilling on Federal lands and also lighten regulations for drillers in general. That could help increase the oil supply and mitigate energy prices. Right now, the Fed is hoping that rising interest rates will crush demand. It knows only too well that higher costs of borrowing will do nothing to increase energy supplies.


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