Q: Will this year’s top stocks keep winning?
A: If you own energy and utility stocks, you’ve had a good year. But don’t expect the good times to keep rolling.
The more than 30% rally in oil prices this year has created a great environment for the speculators that scooped up energy shares coming into the year. The Energy Select Sector SPDR exchange-traded fund jumped 10.1% this quarter and 12.9% this year so far. “Both oil and gas prices have been on a tear,” says Mark Hanson, analyst at Morningstar. Soaring prices have eased investors’ worries about energy company’s financial strength. Meanwhile, nervous investors looking for big yields have pushed utilities stocks up more than 20% this year.
It might be tempting to pile onto these stocks and sectors that have been working so well. And there’s no question both energy and utilities stocks have a well-deserved place in a diversified portfolio. Energy stocks account for roughly 7% of the market value of the Standard & Poor’s 500 and utilities roughly 4%.
It’s possible these sectors’ momentum can continue, but betting on that isn’t wise. Oil prices are already up sharply many analysts don’t expect that kind of rise in the rest of the year. Meanwhile, utilities stocks are now more expensive than the broad market.
USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.
