Investors were bullish on energy stocks during the fourth quarter of 2016, with five out of the eight SNL Energy indexes recording gains and outperforming the third quarter of 2016.
The SNL Coal Index managed to generate a 9.18% gain in price change during the last quarter of 2016, the highest percentage gain among all SNL Energy indexes, as the coal sector prepares for a brighter future after hitting what many are hoping was the bottom of a steep drop in the market.
The SNL Gas Utility Index, comprised of publicly traded gas companies, finished with a 7.08% gain, while SNL Energy Small Diversified Index came in third in terms of percentage gains and was up 6.93%, compared with a loss of 1.38% in the third quarter of 2016.
The SNL MLP Index closed the fourth quarter with a 2.72% gain, compared with a gain of 2.4% for the quarter ended Sept. 30, 2016. The SNL Midstream Energy Index managed to show a slight recovery at the end of the fourth quarter and closed with a gain of 0.68%, compared with a 7.3% gain at the end of the third quarter of 2016. For big midstream companies, 2016 was largely a rebuilding year after energy prices plunged in 2015 and into early 2016. While the largest U.S. gas and oil pipeline companies outperformed their midstream peers and the benchmark S&P 500, they underperformed gas producers, which rallied back from a deeper trough.
The SNL Energy Large Diversified utility index saw a drop of 0.05% in the quarter ended Dec. 31, 2016, compared with a 5.62% loss during the quarter ended Sept. 30, 2016. The SNL Electric Company Index closed the quarter with a 0.33% dip after a 4.42% loss in the third quarter of 2016. Some on Wall Street believe the utility sector is "likely to be out of favor with investors in the next several years" and is expected to underperform the S&P 500 in 2017.
The SNL Merchant Generator Index remained in the red zone for the most part of the fourth quarter and narrowed its decline to 0.93% from a 6.98% loss at the end of the third quarter of 2016. Morgan Stanley analysts in September 2016 said the fundamental value in merchant stocks was being overlooked, though they referred to the prevailing market environment as "a very, very unusual time." In a Dec. 4, 2016, note, UBS analyst Julien Dumoulin-Smith pointed to a confluence of factors pressuring merchant equities, namely weak commodity pricing, poor Electric Reliability Council of Texas Inc. and PJM Interconnection LLC fundamentals, the potential extension of tax credits for renewable generation, and subdued asset prices.
SNL Energy is an offering of S&P Global Market Intelligence.