On June 30th the second quarter and first half of 2023 came to a close. The S&P 500 returned 8.3% for the quarter, but that performance was highly uneven. As in Q1, eight of 11 sectors underperformed the S&P 500 in Q2.
This is primarily because the S&P 500 has a high concentration of technology holdings. That sector — after a miserable 2022 — pulled out excellent returns in Q1 and Q2, and that skewed the S&P 500 average. The Dow Jones Industrial Average, by contrast, is lagging the S&P 500 by more than 10% on the year.
The median sector, as shown in the graphic below, was the Materials sector, which managed a 3.2% Q2 return. The energy sector, which I predicted would underperform this year, turned in the 2nd worst sector performance in Q2, and is also the second worst performer year-to-date. Only the Utilities sector and its -5.7% return was worse than the Energy sector’s -5.4% YTD return.
According to data provider FactSet — which I use to analyze companies — the average upstream company returned 0.5% in Q2. These are the companies that produce oil and gas. Of the 53 companies that FactSet classifies as “Upstream”, 22 had a negative return in Q2. YTD the average Upstream company is down 9.6%.
The top performers in Q2 in the Upstream sector were Evolution Petroleum Corporation (+29.7%), EQT Corporation (+29.5%), and Southwest Energy (+20.2%). ConocoPhillips, the largest Upstream corporation, returned 5.6% on the quarter.
Among the 46 companies that FactSet classifies as “midstream”, the average return was 1.2%. YTD the best among the group by far has been NGL Energy Partners, which generated a total first half return of 221.5%. That was also the best first half return of any energy company in any category.
The integrated supermajors declined by an average of 1.1%. Among this group, the best performer in Q2 was Shell with a total return of 5.9%. Shell was the only integrated supermajor with a positive return in Q2, and it is the top performer in its class for the year with a return of 8.0%.
The Big Three refiners — Marathon Petroleum, Valero, and Phillips 66 — lost an average of 11.0% for the quarter. All of these companies were down, but Valero was the worst performer, declining 15.2% during the quarter.
Oil prices are considerably lower heading into the second half of 2023 than they were a year ago, but OPEC production cuts will likely be felt before the year ends. This should prop up oil prices and provide better prospects for energy companies in the second half of the year.