Investors should look to energy stocks as stubborn inflation weighs on the stock market amid growing anxiety over whether the Federal Reserve will cut interest rates at all this year, according to Wolfe Research. “This inability to adequately tame inflation of course coincides with the reacceleration of Oil and Energy stocks over the past few months,” analysts Rob Ginsberg and Read Harvey told clients in a Monday note. The energy sector has rallied 14% this year, far outperforming the broader S & P 500 as U.S. crude oil has gained more than 16% on a tight supply-demand balance and rising geopolitical risks. Wolfe’s top picks are the oilfield services company Haliburton and the natural gas producer EQT Corp . Halliburton’s upward trendline has remained intact for the past three years, according to the analysts. “So long as the stock is trading above it, we would continue to buy dips and play for more upside,” Ginsberg and Harvey told clients. Halliburton was last trading at $38.58, up 6.7% this year. HAL YTD mountain Halliburton in 2024. EQT broke out to a five-month high last week. The Wolfe analysts said investors should take advantage of any near-term overbought consolidations and make a play for the stock to rise back into the mid $40s. EQT was last trading at $40.92, up 5.8% since the start of the year. The energy sector is gaining as a suite of bad economic data weighs on the broader market. Inflation rose 2.8% in March over the year-ago period as U.S. economic growth slowed to 1.6% in the first quarter. Investors have pushed back expectations for interest rate relief, with the market expecting fewer cuts than originally expected in the year. In fact, the failure to make much recent progress against inflation has raised growing questions about whether there will be any cuts in 2024. Crude oil and the 10-year breakeven inflation rate, meanwhile, are both on the upswing from multi-year bases, according to the Wolfe analysts. The breakeven rate is a measure of where the market thinks inflation is heading. It is the difference between the yields on 10-year Treasurys and 10-year Treasury Inflation-Protected Securities. “Needless to say, we want to keep playing Oil and Energy stocks to the upside over near – mid term, which should in turn put continued upward pressure on inflation,” the Wolfe analysts said. EQT YTD mountain EQT shares year to date. — With reporting by CNBC’s Michael Bloom
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