Connect with us

Company

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

Published

on


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
SPX,
-0.19%

  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
SP500.10,
-2.44%

  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

2.7%

Quartile 3

2.6%

Quartile 2

0.7%

Best-performing quartile of months

2.3%

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

+24.6%

In contango, but becoming steeper

-5.7%

In backwardation

+3.9%

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 mark@hulbertratings.com

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



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Company

These money and investing tips can help you stay upright against the market’s headwinds

Published

on

By


Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can give you greater knowledge about the financial markets’ current condition as you monitor your portfolio and plan ahead. Plus, check out several short videos about whether to include bitcoin and other cryptocurrency in your portfolio and how to go about it if you do.

Sign up here  to get MarketWatch’s best mutual funds and ETF stories emailed to you weekly!

INVESTING NEWS & TRENDS
A long-held investing belief — that stocks always beat bonds over the long term — turns out to be untrue

Recent history has shown that equities tend to outperform, but a review of returns back to 1793 reveals a different story.
A long-held investing belief — that stocks always beat bonds over the long term — turns out to be untrue

The Dow and the Nasdaq are diverging. Why that’s honey for stock market bears

Disconnected trading pattern hasn’t looked so ominous since the internet bubble years.
The Dow and the Nasdaq are diverging. Why that’s honey for stock market bears

Why Generation ‘I’ — YOLO investors who’ve never seen a bear market — should worry us all

First-time stock investors are making money now but market veterans know how this story ends.
Why Generation ‘I’ — YOLO investors who’ve never seen a bear market — should worry us all

5 things this index pioneer wants you to know about today’s investing challenges

Straight advice on money and market behavior from David Booth of Dimensional Fund Advisors.
5 things this index pioneer wants you to know about today’s investing challenges

Why switching investment strategies to get a market edge only leaves you behind the pack

Pick an investment plan with a good long-term record and follow it.
Why switching investment strategies to get a market edge only leaves you behind the pack

Space infrastructure is the next investment frontier and SPACs are a launch pad

The global space industry is expected to generate revenue of at least $1.4 trillion by 2030
Space infrastructure is the next investment frontier and SPACs are a launch pad

5 things to watch out for before you invest in SPACs

Similarities to the dot.com and subprime bubbles are unmistakable.
5 things to watch out for before you invest in SPACs

Long-tenured CEOs can take a business from good to great — and these companies have them

A vision for success and shareholders willing to see it through can give a business a competitive edge.
Long-tenured CEOs can take a business from good to great — and these companies have them

Franklin Templeton’s view on interest rates

Sonal Desai, CIO for Franklin Templeton’s Fixed Income Group, discusses her expectations for U.S. and global interest rates.
Franklin Templeton’s view on interest rates

Educating today’s investors about maneuvering through markets

Joe Moglia, former chairman & CEO of TD Ameritrade, discusses how investors can better maneuver volatile markets with assistance from trading platforms.
Educating today’s investors about maneuvering through markets

These 3 alternative income streams may boost portfolio returns

As traditional income strategies, like bonds and dividend stocks, got challenged by the pandemic, some investors turned to pass-through securities in search of income. Here’s what you need to know.
These 3 alternative income streams may boost portfolio returns

What Coinbase’s public debut means for bitcoin and crypto

The listing of Coinbase, the largest bitcoin exchange in the U.S., introduces a new way to invest in cryptocurrencies.
What Coinbase’s public debut means for bitcoin and crypto

Why Mike Novogratz sees bitcoin reaching $500,000 by 2024

Galaxy Digital’s Mike Novogratz explains the outlook for crypto as Coinbase goes public.
Why Mike Novogratz sees bitcoin reaching $500,000 by 2024

How to devise long-term strategies for investing in digital assets

Katie Stockton and Bryan Routledge discuss strategies and the rationale for holding crypto with Barron’s Ben Levisohn.
How to devise long-term strategies for investing in digital assets



Source link

Continue Reading

Company

Opinion: I took advantage of the 2020 RMD rule but now my 1099-R looks wrong — what should I do?

Published

on

By


Q: I took advantage of the 2020 RMD rule and returned what I had taken from my IRA thinking there would be no taxes. I just got a 1099-R showing the full RMD. That can’t be right. How do I correct it?

—Pauline

A.: Pauline,

If the 1099-R is incorrect, you will need to contact the firm that issued the statement to get it corrected. However, the 1099-R is probably correct.

Read: Are there new RMD rules this year?

Under the law, the firm issuing the 1099-R has no responsibility for reporting how much of a distribution is taxable. That responsibility rests on your shoulders as a taxpayer. The issuing firm need only report what was paid out of the IRA on 1099-R.

Not sure where to retire? Let us help you find the right spot

That does not mean you will pay any tax. Any funds returned to the IRA by Aug. 31, 2020 is considered a rollover and is not taxable. Normally, Required Minimum Distributions (RMD) are not eligible for rollover, but IRS guidance after enactment of the CARES Act that waived RMD for 2020 changed that. The guidance stated the normal 60-day time limit for rollovers would not apply and instead instituted a fixed deadline of Aug. 31, 2020 to return such distributions and avoid taxation.

Read: It’s not too late to save on your 2020 tax bill — here’s how

I get similar questions about 1099-Rs every year. The reporting of the gross distribution looks like an error but in most cases, it is correct and the person receiving it simply hasn’t learned how it is accounted for yet.

Here’s how the accounting typically works.

As with any gross amount reported on Form 1099-R, you declare the amount that is not taxable when you file your 2020 tax return. What I hear most tax preparers would do in your situation is put the gross distribution amount from 1099-R on line 4a as per the normal procedure. Then, they would place a zero in 4b of your Form 1040, and put a note on the return near those lines that it was “returned to the IRA under the CARES Act,” “CARES Act rollover,” “CARES Act,” or simply “Rollover.”

Read: These are the best new ideas in retirement

If you did not return all of distribution by the deadline, the portion that was not returned would be taxable. You would put that number on line 4b.

Read: 5 things to do if you inherit a Roth IRA

As I mentioned a moment ago, the discrepancy between the gross distribution reported and what should actually be taxable comes up in other situations. Three of the most common are other rollovers, Qualified Charitable Distributions (QCD), and distributions from accounts that had received after-tax contributions.

In all those cases, the reporting process looks like what I described above. You put the gross distribution on line 4a and the taxable portion on Line 4b. Then note why the numbers are different with “rollover,” “QCD,” or “See Form 8606” on the 1040. Form 8606 is the form used to determine the taxable amount of an IRA distribution when nondeductible contributions have been made to any of one’s IRA accounts.

If you have a question for Dan, please email him with ‘MarketWatch Q&A’ on the subject line.

Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.



Source link

Continue Reading

Company

Video: Why Mike Novogratz sees bitcoin reaching $500,000 by 2024

Published

on

By



Galaxy Digital’s Mike Novogratz explains the outlook for crypto as Coinbase goes public.





Source link

Continue Reading

Trending