Some investments are suitable for the fearful, others for the greedy. U.S. energy stocks may be a rare fit for both. The sector is an inflation hedge and also has home-run growth potential if liberated from shareholder-imposed mandates to abide by environmental, social and governance constraints. Energy stocks should continue to outperform as capital rotates from technology to energy.
Record low interest rates from 2009 through 2021 led investors to embrace risk by valuing uncertain cash flows in the distant future relative to low-yielding cash in the bank. That fueled a 12-fold appreciation in U.S. technology stocks, as the sector’s average price-earnings ratio rose to 34 from 13. (The S&P 500 index increased fourfold and multiples expanded from 14 to 25.) Pandemic policies in 2020-21 supercharged this trend. Unprecedented fiscal stimulus left consumers and states flush with cash that fueled even greater risk-taking, while lockdowns and remote work favored tech.
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