After ranking as one of 2018’s worst-performing sectors, the energy sector is rallying to start 2019. The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund entered Wednesday with a year-to-date gain of almost 9%, but energy stocks have faced myriad challenges this earnings season.

Some market observers believe the energy sector’s declines could make the sector more attractive on valuation. Last month, the energy sector experienced a short-lived rally after lengthy Organization of the Petroleum Exporting Countries (OPEC) discussions finally came to a conclusion, resulting in a larger-than-expected production cut that sent oil prices higher.

“To date, 11% of the companies in the S&P 500 have reported actual results for Q4 2018. In terms of earnings, more companies are reporting actual EPS above estimates (76%) compared to the five-year average. In aggregate, companies are reporting earnings that are 3.2% above the estimates, which is below the five-year average,” according to FactSet.

The numbers are worse in the energy patch. Just 50% of energy companies that have reported have delivered numbers inline with estimates while 50% have missed earnings estimates, meaning there have been no positive surprises from the group, notes FactSet.

Earnings Growth

On the upside for energy stocks and ETFs is some solid earnings growth for the sector.

“Six sectors are reporting (or are expected to report) double-digit earnings growth, led by the Energy, Industrials, and Communication Services sectors,” according to FactSet.

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