Why I Am A Reluctant Bear On The Energy Sector

Summary

• The energy sector, especially small-cap stocks, have been on a tear for two years and are likely to outperform the S&P 500 over the remainder of the decade.
• But, short term, energy prices are likely to squeeze the economy and other equity sectors until the market crashes, ultimately dragging the energy sector down, as well.
• Moreover, stocks generally are overextended on a long-term basis, and what will likely be a decade of low returns will also be a drag on long-term energy performance.
• The commodity complex is likely also at unsustainable highs and once they decline, energy is likely not too far behind.
• Smaller-cap energy ETFs like RYE and PSCE are the most vulnerable to a pullback and are already showing hints of weakness.

Oil market volatility is likely to upset the stock market's boat...and energy stocks, too

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Why I am a reluctant bear on energy stocks

Energy stocks lie on the fault lines between massive, macroeconomic tectonic plates, and it is as difficult to predict how they will perform as it is to predict the movements of the earth

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am short tech stocks, long Treasuries, and long KOLD.