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Earnings Season Could Lift Energy ETFs

This article was originally published on ETFTrends.com.

With second-quarter earnings season fast approaching, investors may want to consider sector exchange traded funds. The Energy Select Sector SPDR (XLE) , the largest equity-based energy exchange traded fund, and rival energy ETFs are among the sector funds to examine.

XLE is about 6% year-to-date, highlighting strength in the energy sector. The sector is expected to post impressive second-quarter results.

“From an earnings standpoint, energy probably will grow earnings about 130 percent, and I didn’t misstate that: 130 percent,” said PNC's former global chief investment strategist Bill Stone in an interview with CNBC. “You have to remember that oil went from a year ago less than 50 dollars a barrel to about 80 dollars a barrel.”

Recently, OPEC members and participating non-members announced a deal to raise its output by about 600,000 to 800,000 barrels per day. Saudi Arabia, the largest OPEC producer, actually wanted to increase by about 1 million barrels per day to take advantage of higher prices.

Energy Outlook Ahead

A combination of diminished global output and rising global demand have helped reduce the global supply glut that dragged on oil prices for years. Production cuts from the Organization of Petroleum Exporting Countries and their allies have largely contributed to the cut in supply. Meanwhile, expanding economies around the world has bolstered demand for raw materials such as crude oil.

Related: 10 Sector ETFs for a Late Market Cycle

Stone “expects S&P 500 earnings to grow at 20 percent in the second quarter, and he believed that could help the stocks rally 10 percent from where they started the year. He’s watching geopolitical headlines closely, such as trade war developments, but he doubted they will spiral out of control,” according to CNBC.

XLE and other traditional cap-weighted energy ETFs are typically heavily allocated to Exxon Mobil (XOM) and Chevron (CVX). Those stocks combine for over 37% of XLE's roster.

Rivals to XLE include the Vanguard Energy ETF (VDE), iShares U.S. Energy ETF (IYE) and the Fidelity MSCI Energy Index ETF (FENY).

For more information on the oil market, visit our energy category.