The rebound in European shares on Monday reflected a rebound in energy and banks stocks. Despite the lack of major central bank decisions, Friday’s options expiration helped equities rally. In addition, the European Central Bank’s (ECB) policymakers reiterated their intention to hike interest rates twice this summer, despite the widening spreads on euro zone borrowing costs. The French blue-chip CAC 40 index gained 0.6% on Monday, after Macron’s Ensemble coalition won the most seats in the National Assembly but fell short of an absolute majority.
In the early days of the pandemic, oil prices plunged. But when demand for oil and natural gas recovered, they surged, and reached multi-decade highs in 2022. While the market is still volatile, investors should keep in mind the risks associated with energy stocks. Avoid putting too much of their portfolio in a single energy stock, or the entire sector. Focus instead on energy stocks that have a strong balance sheet.
Oil prices continued to support the energy sector, which accounted for more than a third of the European share market’s overall gains. However, the S&P 500 experienced one of its worst starts in history this year, as a Russian invasion ignited already high inflation. Further, the Federal Reserve has tightened monetary policy, raising worries of slower crude demand and uncertainty in supply chains.
Oil prices continued to rise as the conflict in Ukraine wreaked havoc on the energy sector. Despite the turmoil in the oil market, energy stocks remain cheap and have room to rise. It’s also wise to buy some energy stocks that have seen good growth recently and are likely to continue to deliver shareholder value regardless of day-to-day fluctuations. Alternatively, a combination of energy and banking stocks is a good idea.
Meanwhile, the Fed will release its results of the annual stress tests for large U.S. banks, which measure their ability to withstand severe economic downturns. These tests were introduced following the financial crisis of 2007-2009, and now dictate the capital planning and distribution of banks’ excess capital. If the Fed decides that banks can continue to raise interest rates, they can distribute the capital they have earned.
The two main sectors in the energy sector are oil and gas companies, which focus on exploration, production and marketing. The upstream companies include Devon Energy Corp. and Marathon Petroleum Corp. They produce crude oil and natural gas and distribute it to consumers. The biggest players in the energy sector are ExxonMobil Corp. and Chevron. In Europe, energy stocks are vital to the economy and to investors.