The decline in the Energy sector seen over the past few years rivals the crashes seen in the Technology sector in 2000-2002 and the Financial sector in 2007-2009. What is more, the energy sector’s declines have come amid a strong rally in the broader market. As a result, the sector’s share of the U.S. market has declined far more than was the case for Tech or Financials, falling a breathtaking 87% since its 2008 peak.
Source: Bloomberg, Author’s calculations
Falling oil prices and the resultant decline in sales and earnings explain only a part of the energy sector’s decline, with pessimism over the future of fossil fuels causing investors to extrapolate the deterioration in the sector’s fundamentals. Our take is that herd mentility has caused investors to be overly pessimistic about the death of fossil fuels, making the 7.5% forward dividend yield on the MSCI Energy index among the best