A mild profit warning from Microsoft and reports about job cuts at Tesla will hardly be welcome headlines for investors in growth stocks as they return from the long holiday weekend, whereas those who own a lot of oil shares may be pleasantly surprised to see crude prices staying firm despite OPEC’s promises to increase output.
AJ Bell Investment Director Russ Mould said: “The contrast could hardly be greater and while financial markets continue to obsess about interest rates and Quantitative Tightening, oil is the biggest issue around right now, not least because central banks cannot print crude so any influence they have is limited to demand, and not supply.
“Oil stocks are responding to this dilemma for policymakers by marching higher. Shares in Shell and BP are both back to pre-pandemic levels and Shell is nudging toward its prior all-time peaks (even if BP is some way short of that).
But when oil stocks are studied in a wider context, it seems as if investors do not really believe that crude will remain in the ascendent for too long, possibly in the view that the long-run move away from hydrocarbons to alternative, renewable sources of energy is still on track.
“The market valuation of oil companies still represents only 11.3% of the FTSE All-Share’s market capitalisation, compared to historic highs north of 20%, when oil also traded consistently above $100 a barrel.”