Some pundits have speculated that the bear market in energy stocks has created deep-value buying opportunities. One factor in this analysis: the relatively high yield for XLE. The fund’s trailing 12-month payout is 3.25%, according to Morningstar.com—a sizable premium over the 2.08% yield for the benchmark 10-year Treasury, as of Oct. 21 via Treasury.gov.
XLE’s momentum, however, still looks weak. Although the fund’s price has been trading moderately above its 50-day moving average in recent weeks for the first time since the spring, the rebound, such as it is, doesn’t yet look convincing. Why? The 50-day average is still below the 100-day average, which is under the 200-day average. In other words, downside momentum still appears to have the upper hand and so the latest rally looks like a dead-cat bounce until or if firmer pricing unfolds in the weeks ahead.
Consumer stocks, by contrast, are enjoying upside momentum these days. That’s no guarantee that higher prices will endure from here on out. The main risk for these shares, and the stock market generally, is macro risk. Heightened uncertainty about the US economy continues to weigh on equities. But if a recession can be avoided, which remains a reasonable forecast at the moment,piling into the relative safety of consumer stocks appears to be a trade with more room to run.