Buoyant oil prices since Donald Trump's election have provided no lasting halo effect for energy stocks as the sector's profit rebound has lacked vigour, but that could change in the week ahead with a fresh crop of quarterly scorecards.
Helped by OPEC output cuts, oil prices are up roughly 20 per cent since Trump's victory, and US crude has held above $US50 a barrel since mid-December. US Commodity Futures Trading Commission positioning data shows hedge funds and other speculators hold near-record-high net long positions in US crude futures and options.
But the S&P energy index, one of the key drivers to the stock market rally in the early days following the November 8 election, has not kept pace. It has slumped nearly 4 per cent for the year.
"We are seeing a little bit of a difference of opinion between equity investors and commodity investors," said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas in New York.
"Equity investors seem a little bit more worried about the outlook for the commodity and the actual commodity investors themselves don't seem to be reflecting that."
Should those opinions converge and energy stocks rebound, stocks could see more pronounced moves than have been seen in recent weeks, with the S&P 500 unable to register a move of more than 1 per cent in either direction since December 7.
The relationship between the energy sector and US crude has also tightened recently, with the 10-correlation at 0.61, its highest in three weeks.
Part of the underperformance in the sector looks to be attributable to a disappointment in quarterly results. Energy companies were expected to benefit from easy comparisons with last year, when the price of oil sank below $US30 a barrel, but so far they've under-delivered against those expectations.
Thomson Reuters data through Friday morning shows energy sector earnings for the fourth quarter are on pace for a fractional decline. A month ago they were seen rising by nearly 5 per cent.
Moreover, the group has so far posted a beat rate of only 58 per cent, as measured by the number of companies in the sector posting better-than-expected results, well below the 68 per cent rate for the S&P as a whole.
"Understand when you think about the energy patch in general, you have to separate out what the fully integrated guys were doing," said Art Hogan, chief market strategist at Wunderlich Securities in New York.
"What drags the group down is when you lump in the majors, and they were spotty."
That should put the focus on the next leg of earnings from energy companies next week, when names such as Marathon Oil , Devon Energy and a host of smallcap companies in the group report results.
Devon is forecast to post a modest profit after a massive loss a year earlier, while Marathon is expected to cut its loss by nearly 90 per cent, according to estimates compiled by Thomson Reuters StarMine. Both posted substantial upside earnings surprises in their previous reports for the third quarter, and shares of both have outperformed their peers since the election, with Devon up 8.3 per cent and Marathon up 13.6 per cent.
"Definitely we are going to need to see some proof in earnings to play catch-up here," said Jeff Zipper, managing director at the US Bank Private Client Reserve in Palm Beach, Florida.
"Now we are going to see some clarity from when these companies report, at least in the sector, to see some follow through here."