Energy stocks have been dominating the market over the past year, with a price return of 37% through Q1 compared to a one-year return of 13.4% for the S&P 500. Over the past 5 years, energy is up 7.8%, well ahead of the 0.5% annualized price return of the S&P 500. In 2011, energy blew away the other parts of the market, returning 16.3%, which was almost double the next-best sector and 3X the return of stocks in general. It was even more explosive for smaller stocks, with S&P 400 mid cap energy stocks returning 18.7% and S&P 600 small cap energy stocks returning an astounding 24.7%.
Well, since the quarter ended, profit-taking has kicked in, with S&P 500 energy stocks declining 2.8%. The damage has been worse for smaller companies, with S&P 400 energy down almost 4% and S&P 600 energy down 3.2%. This comes despite the dollar weakening, oil being somewhat stable and other commodities rising marginally. I believe that there is more downside ahead in the near-term, as investors continue to rotate into other parts of the market.