Energy Lags the S&P 500 as Oil Settles Mixed

EasyAlpha grades the stocks across the Energy sector, where weak breadth defined Thursday, September 3. Just 14.3% of the sector's S&P 500 members posted gains as the cap-weighted sector fell -0.7%, contrasting with the broader market where 10 of the 11 sectors rose. The Energy Select Sector SPDR Fund, an exchange-traded fund tracking the sector under the ticker XLE, dropped -0.7% to close at $64.64, pulled lower by exploration and production companies like EOG Resources Inc (-2.0%). That retreat occurred as crude oil prices settled mixed amid conflicting geopolitical developments and supply forecasts.

Refiners were among the few gainers in the sector, led by Valero Energy Corporation (+1.3%) and Marathon Petroleum Corp (+0.2%). Upstream producers fell as crude markets moved sideways. Brent crude slipped to $95.52 a barrel while West Texas Intermediate rose to $91.30 a barrel, as concerns over vessel traffic through the Strait of Hormuz were balanced by rising Iraqi exports and diplomatic remarks regarding Russia and Ukraine. The equal-weighted sector move of -0.6% was close to the cap-weighted decline, showing that selling occurred across both large and smaller producers.

Even with Thursday's decline, XLE is up +12.8% over the past month. While Energy Select Sector SPDR Fund charges an expense ratio of 0.08% to manage $39.2 billion, using the fund for broad exposure bundles top performers alongside the sector's lower-graded names.

Across the sector, 32.1% of the fund's graded weight sits in companies EasyAlpha grades A or B. Companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. The remaining weight sits in companies graded C or lower, leaving the majority of the fund in average or below-average quality tiers.