Energy sector has underperformed the S&P 500 by 14% since mid March. What gives? Speculation follows…

Sometimes it feels like the market is too clever by half. Instead of tracking rate of change of fundamentals, it tracks the rate of change of the rate of change. e.g. even if data improving, when does the rate of improvement peak?

2nd derivative

Rate of change of 5d change in Brent (histogram) vs Energy sector (white). Note 2nd derivative – sector inflection when the rate of change of 5d Brent change peaks/troughs.

We’re digging on the mid March inflection herein. Looking at some energy specific and macro data

Now looking for other data where the 2nd derivative inflected around mid March alongside the energy sector.

Weekly performance Energy vs S&P 500. Recent peak in March

Rolling 5d change in Brent 2-3 timespread. Peak improvement 1H March

2021 Energy sector earnings estimates. Peak improvement in mid March

Implied gasoline demand w/w chg. Improving, yes. But magnitude of improvement declining from early Mar peak

More on gasoline demand. This is ‘21 gasoline demand deviation from the ‘10-’19 seasonal average (all 4wk mov avg). Biggest delta vs hist avg during peak lockdown. YTD further closing gap to hist avg

2nd derivative of ‘21 vs hist avg. How quickly is ‘21 closing gap to hist avg? Still improving, but of weekly improvements peaked in March

Implied distillate demand. Similar trend. Didn’t feel like comparing this to historical because reasons

Remember the whole premise that increasing yields should be bad for duration, growthy sectors and implicitly good for cyclicals.

Weekly change in US 10Y yield. Peaked in mid March

Other bigger picture data. Rolling 5d change in US COVID cases. Inflected in mid March

Rolling 5d change in India COVID cases. 2nd derivative taking off in March

Rolling 5d change in Brazil COVID cases. En fuego in March, looks to be hooking lower now - fingers crossed

4wk mov avg initial jobless claims. 2nd derivative bottomed in …. March

Conclusions? Rate of improvement generally peaked in March. Fundamentals have come in sure, but not catastrophic.

Though, it’d be a lot cooler if the 2nd derivatives were headed up and to the right again