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Why the energy sector could lose power in December after an electrifying November



Oil-market timers are starting to jump onto the bullish bandwagon, given the S&P 500 Energy Sector’s extraordinary gain of 28.0% in November. In contrast, the S&P 500

  gained “only” 10.8%. Unfortunately, the timers’ exuberance likely represents a triumph of hope over experience.

One indication that a 28% monthly gain isn’t automatically bullish: The energy sector actually produced a better monthly gain this past April, when it rose 29.8%. And we all know what happened next: From the end of April through the end of October: the S&P 500 Energy Sector Index

  lost 22.8%.

That’s just one data point, but the longer-term record confirms the same result. Consider the data in the table below, which I constructed upon segregating into quartiles all monthly total returns since 1990 for this index. I then calculated the sector’s average subsequent three-month return for each quartile.

Monthly returns since 1990 of the S&P 500 Energy Sector Index 

Average subsequent 3-month return of the S&P 500 Energy Sector Index

Worst-performing quartile of months


Quartile 3


Quartile 2


Best-performing quartile of months


Notice that the best average subsequent three-month returns occurred subsequent to the worst-performing quartile. The second-best average return came following the second-worst quartile. If there is a pattern in the data, it’s that the energy sector performs better after losing months than winning months.

To be sure, according to my PC’s statistical package, this pattern is not significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine. Our best guess, therefore, is that the energy sector’s return in coming months is unrelated to how it did in November.

The futures curve

The shape of the futures curve is another factor to consider as you form an oil market forecast. This curve is upwardly sloping (a situation known as “contango”) when the prices of futures contracts that expire in the future are trading higher than the current spot price. The futures curve is said to be in backwardation when contracts expiring in the future are trading for lower than the current price.

Rob Anderson, a senior sector analyst for Ned Davis Research, recently calculated the average oil price performance as a function of different shapes of the oil market’s futures curve:

Shape of oil market’s futures curve

Oil’s price average annualized return

In contango, but moving towards flat


In contango, but becoming steeper


In backwardation


The first of the table’s three conditions prevailed in the summer and earlier in the fall, which helps to explain the sector’s explosive return in November. But that flattening-contango formation has largely evaporated as the oil market’s futures curve for the next 12 months is now close to being flat. That means that the shape of the oil futures curve does not translate into either a strongly bullish or bearish forecast for coming months.

Oil and COVID-19

Probably the biggest single factor influencing oil’s price in coming months will be the course of the COVID-19 pandemic, since that will have a big impact on the strength of the economic recovery and, in turn, the demand for oil. Look for oil to rally if evidence emerges that the pandemic won’t be as bad as expected this winter, or if the pace of vaccine production and distribution becomes quicker than anticipated. The opposite will likely be the case if the pandemic turns out to be worse than expected.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

Also read: 3 energy stocks for the pandemic rebound that has already started

More:7 reasons why energy stocks will be 60% higher a year from now

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‘I could live on my Social Security and still save money’: This 66-year-old left Chicago for ‘calming’ Costa Rica — where he now plans to live indefinitely




Editor’s note: This article was first published in September 2019.

A school break changed 66-year-old Martin Farber’s life forever.

In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.

“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”

But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”

And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”

What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.

A view from the hot springs near Martin Farber’s home in Costa Rica.

Martin Farber

So in 2014, he packed up and moved to Orosi — a picturesque, lush small town with waterfalls and hot springs a little over an hour’s drive from San Jose — promising himself he’d stay for two years. It’s been five, and he now plans to stay in Costa Rica indefinitely. (Though Farber notes that, to him, “it’s not a retirement; it’s a chance to lead a new and different life.”)

Here’s what his life is like, from costs to health care to residency to everyday life:

The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.

Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen


salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”

His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.

In the saddle.

Martin Farber

Health care: Farber, who has permanent resident status in Costa Rica, says he pays about $90 per month to participate in the country’s health-care system — adding that the health care he’s received has been very good. (A 2018 study of health-care quality and access in more than 190 nations ranked Costa Rica No. 62.)

When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.

Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.

And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”

The historic Iglesia de San José de Orosi.


Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”

Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.

The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”

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Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path




These money and investing stories were popular with MarketWatch readers over the past week.

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Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path




These money and investing stories were popular with MarketWatch readers over the past week.

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