Oil Prices Are Back Above $100. History Says the Biggest Stock Market Loser May Now Offer the Biggest Upside.
If you're willing to be a contrarian, this sector is looking attractive.
Oil prices have been hovering above $100 a barrel for most of the past month, primarily due to the ongoing Iran war. This surge in crude, gas, and diesel prices has attracted equity investors to energy stocks, which have seen a 50% gain year-to-date. However, this may not be the wisest strategy. While energy stocks often benefit from rising oil prices, their upside may be limited.
History suggests that the better investment might be the sector that has been underperforming, the consumer discretionary sector. This sector, which has suffered due to high inflation, could offer significant upside if oil prices stabilize and inflation declines. The State Street Consumer Discretionary Select Sector SPDR ETF (XLY) has been the worst-performing sector this year, but with inflation showing signs of cooling and consumer sentiment improving, this could be a promising long-term investment.
The current situation in the oil market suggests that while energy stocks may struggle in the short term, the consumer discretionary sector could offer substantial gains if the current inflation and geopolitical issues settle down.
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