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Short interest in U.S. energy stocks, this year’s best performing stock sector, has climbed to 3.9%, the highest level since October 2020, The Wall Street Journal reported this week, citing S&P Global Market Intelligence.

In comparison, the average short interest across the entire S&P 500 sits at 2%, according to the report.

Even after giving up some of its gains, the S&P 500 energy sector is up 53% YTD, compared with a 22% loss for the S&P 500 and a stark reversal after years of weakness – and some traders believe that kind of outperformance cannot last.

The group’s naysayers note the oil price has dropped well below YTD highs, and with the world likely headed for a recession, demand for oil tends to wane when business activity slows down.

(NYSEARCA:XLE), (XOP), (VDE), (OIH), (CRAK), (DRIP), (GUSH)

But many on Wall Street believe energy stocks have more room to run, including Goldman Sachs, which forecasts Brent crude will climb to $115/bbl over the next six months, and the performance of energy stocks typically has been closely correlated with the price of oil.

Goldman says energy stocks historically have been the biggest outperformers in the market when economic growth has been below average and inflation has been higher than expected.



Image and article originally from seekingalpha.com. Read the original article here.

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