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Chart Watch: Coal, Merchant indexes record highest gains in Q3

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August

Chart Watch: Coal, Merchant indexes record highest gains in Q3

Investors were bullish on energy stocks during the third quarter of 2017, with six of the eight SNL Energy indexes recording gains and outperforming the second quarter of 2017, according to S&P Global Market Intelligence data.

The SNL Coal Index had a roller coaster quarter of volatile ups and downs but finished the quarter that ended Sept. 30 with an 8% gain, the highest percentage gain among all SNL Energy indexes, compared to the biggest loss of 11.9% in the second quarter of 2017. The gain comes as the coal industry saw relatively stable coal production in the past 12 months with coal companies posting some favorable earnings results favorable earnings results in the second quarter, given bankruptcy reorganizations and significant improvement in market conditions.

The SNL Merchant Generator Index closed up in second place with a gain of 6.9%, compared to a nearly 11% gain recorded at the end of the second quarter. The index recovered after experiencing a loss of more than 2% at the start of the quarter that ended Sept. 30, given the latest corporate reincarnation in the independent power sector as well as pledges to deleverage balance sheets, restructuring efforts and M&A speculation.

The SNL Gas Utility Index came in third in terms of percentage gains and closed the quarter with a 4% gain, compared to a 0.3% gain during the quarter that ended June 30. The SNL Energy Small Diversified Index closed the third quarter with a gain of 3%, compared to a gain of 2% during the second quarter.

The SNL Electric Company Index closed the most recent quarter with a 2.4% gain in price change, compared to a gain of 5.2% during the second quarter. The SNL Energy Large Diversified Index recovered quickly after a minor loss at the beginning of the quarter and closed the quarter with a gain of 2.2%, compared to a 1.9% gain at the end of the second quarter.

Investors have moved into utilities as a safe harbor amid growing domestic and global tensions, which have also sent bond prices higher. The sector has seen significant interest recently after a number of high-profile mergers and acquisitions were announced or speculated.

The SNL Midstream Energy and SNL MLP Indexes remained in the red zone for most of the third quarter and were down 1.3% and 2.6%, respectively. The two had the second- and third-largest losses in the second quarter. The losses come as major midstream players continued to grapple with low prices and lackluster financials. Moreover, distribution cuts at midstream master limited partnerships continue to drag down investor sentiment, but analysts at CreditSights say fee-based MLPs generating robust retained cash flows can ride out that volatility to maintain high, sustainable yields.

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