WS week ahead recession fears pose challenge

NEW YORK (Reuters): A potential US recession and tough comparisons to a stellar 2022 are weighing on the prospects of energy stocks delivering an encore to last year’s stunning run, despite valuations that are seen as still comparatively cheap.

The S&P 500 energy sector (.SPNY) is up 4.2% year-to-date, slightly lagging the rise for the broader index (.SPX). The sector logged a 59% jump in 2022, an otherwise brutal year for stocks that saw the S&P 500 drop 19.4%.

Energy bulls argue the sector’s valuations bolster the case for a third-straight year of gains, which would be the first such feat for the group since 2013. Goldman Sachs, RBC Capital Markets and UBS Global Wealth Management are among the Wall Street firms recommending energy stocks.

Despite last year’s run, the sector trades at a 10 times forward price-to-earnings ratio, compared to 17 times for the broad market, and many of its stocks offer robust dividend yields.

The potential returns for shareholders were highlighted this week when Chevron shares rose almost 5% after announcing plans to buy $75 billion worth of its stock.