Round-Tripped and Reset

In January 2022, oil & gas stocks broke out relative to the S&P 500 as the Russia–Ukraine war erupted and markets braced for sanctions to remove millions of Russian barrels from global supply.

But that scenario never fully materialized. By fall 2022, energy equities began to lag large-cap growth benchmarks like the S&P 500 (orange line above), and they've struggled to keep pace since.

Earnings tell the story. Sector profits peaked in Q4 2022 and have declined by nearly 55% over the past 26 months. That drop now exceeds both the average and median historical drawdowns—in magnitude and duration—since 1912 (filtering for declines greater than 10%).

In short: we’ve round-tripped back to pre-war levels.

On the supply side, the narrative has flipped. What began as fears of disappearing Russian barrels has morphed into concerns over a flood of Saudi (and other) barrels returning to market.

On the demand front, the pendulum has swung from stimulus-fueled euphoria to softening labor markets, stagnating incomes, and fading consumer spending.

Yet for all that, energy stocks are only down ~16% YoY—a move that falls below a 1-standard-deviation drawdown in the historical record. Given the macro headwinds, that’s... not bad.