U.S. energy shares are soaring as investors benefit from rising oil prices and a stronger-than-expected economy, while seeking to protect their portfolios from a feared resurgence of inflation.
“If inflation is going to pop up again ... the hedge is to have some commodities exposure,” said Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group. Energy stocks have risen as a U.S. equities rally has broadened beyond the growth and technology companies that led gains last year. Investors’ appetite for non-commodities-related sectors could take a hit, however, if inflation expectations keep rising and worries about a hawkish Fed grow.
Energy shares fell nearly 5% in 2023, while the broader S&P 500 gained 24%. But their inflation hedging credentials received a boost in 2022. That year, the S&P 500 energy sector jumped about 60%, providing a bright spot in a stock market that plunged as the Fed raised interest rates to fight inflation that had reached 40-year highs.