No September Slide for the Energy Sector and This Leveraged ETF

The start of the trading week may have racked investors with a broad market sell-off, but there’s been no September slide for energy stocks and the Direxion Daily Energy Bull 3X Shares (ERX).

Despite what was expected to be a weak September for equities, ERX has eked out a 7% gain over the past month. In the broader energy sector, it’s been outperforming its stock market peers.

“Even with stocks skidding to their worst day in four months, energy remains the top-performing sector in the market,” a Wall Street Journal article said. “Shares of oil-and-gas companies tumbled 3% on Monday amid a marketwide rout sparked by troubles in China’s property market, but the energy sector is still the brightest spot in a down September for stocks. Energy stocks in the S&P 500 lead the broad index’s 11 other sectors this month, with a 1.2% decline.”

Three household names in the energy sector (Cabot Oil & Gas, EOG Resources, and ConocoPhillips) have seen strong gains during the month of September. All three companies are part of ERX’s holdings.

“Cabot Oil & Gas remains up 21% in September, while EOG Resources and ConocoPhillips have each gained at least 2.8%,” the WSJ article said further. “The S&P 500, meanwhile, is down 3.6%, as the technology, communication, industrial and material segments have all fallen at least 3.9% this month.”

ERX seeks daily investment results equal to 200% of the daily performance of the Energy Select Sector Index. The index is provided by S&P Dow Jones Indices and includes domestic companies from the energy sector, which includes the following industries: oil, gas, consumable fuels, and energy equipment and services.ERX Chart

Energy Strength Here to Stay

Momentum can be a difficult thing to stop once it gets going. Right now, the energy sector certainly has momentum on its side, and market experts predict that it can be a sustainable rally that won’t fizzle out quickly.

According to the WSJ article, “analysts say the supply-and-demand dynamics that have been driving energy stocks in recent weeks aren’t going away soon, leaving the group poised for more gains. Investors’ enthusiasm for many other stocks has been tempered by valuation concerns, the health of the recovery and a potential resurgence of Covid-19.”

“We continue to be bullish on energy,” Chris Verrone, head of technical and macro research at Baird’s Strategas said.

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