The winners of Monday’s actions are all in one place

IInvestors entered the new week with mixed views on where the stock market should go. Pre-market gains turned into losses in early trading, only to reverse higher and lead to mixed results. Investors are always analyzing how inflation, interest rates and economic impacts will offset each other. Starting at 11:30 a.m. ET, the Dow Jones Industrial Average (DJINDICES: ^DJI) was up 57 points to 31,558. S&P500 (SNP INDEX: ^GSPC) gained 8 points to 3,920, but the Nasdaq Compound (NASDAQ INDEX: ^IXIC) was still down 13 points to 11,595.

Often, stock market gains are the result of broad-based movements across many industries. That was not the case on Monday, however, as nearly all of the rise in major market benchmarks stemmed from the strength of a single industry: oil and natural gas.

Big winners in the oil field

It was not difficult to see the impact that energy stocks had on the market on Monday. 3% upward movements for ExxonMobil (NYSE: XOM) and 2% for Chevron (NYSE: CVX) showed that even the largest integrated oil companies benefited from favorable conditions to start the week.

Junior exploration and production companies fared even better. Devon Energy (NYSE:DVN) climbed almost 8% on Monday morning, while Marathon oil (NYSE: MRO) shows a gain of 6%. Among the smallest names, Ranger Oil (NASDAQ: ROCC) gained more than 12%, while Vermilion Energy (NYSE: VET) increased by 11%. Rising crude oil prices helped boost E&P companies, with West Texas Intermediate climbing nearly $2 a barrel to break above the $109 mark.

Other facets of the energy industry also contributed to the overall gains. Among refiners, Valero Energy (NYSE: VLO) picked up more than 6% on the day, while HF Sinclair (NYSE:DINO) came close to matching that 6% increase. Phillips 66 (NYSE:PSX) achieved a more modest increase of 4%. Refined product markets have helped bolster the outlook for refiners, as unleaded gasoline and diesel fuel remain at very attractive levels relative to the cost of the crude that goes into their manufacture.

Foreign energy stocks also contributed to the uptrend. Norway Equine (NYSE: EQNR) saw its stock climb more than 5%, while South America Petrobras (NYSE: PBR) saw its shares gain more than 7%. The strength of foreign currencies against the US dollar likely also played a small role in the gains for stocks of international energy companies.

The future of energy

At this point, there is enormous uncertainty about the future direction of energy markets. Oil and natural gas prices were already soaring on resurgence in demand as the global economy reopened from the worst of the COVID-19 pandemic. Then, when Russia invaded Ukraine, oil and gas prices rose again.

Basically, the Russian part of the equation has not fully played out yet. Although Western countries have been quick to start the sanctions clock, some of the most onerous restrictions have yet to take effect. In addition, there are growing fears that if Western European countries cannot obtain natural gas from Russia, they will be unable to replace lost supplies from other sources. Even significant capacity gains thanks to liquefied natural gas terminal operator Energy Cheniere (NYSEMKT: LNG) will be far from meeting all of Europe’s needs.

Interestingly, renewable energy stocks did not react as they normally do when oil prices rise. Typically, investments in solar, wind and other renewable sources increase with crude oil, as the potential gain is greater in a strong energy market. However, there is still a lot of skepticism about how long oil prices stay high. This limits investments not only in the oil field, but also in adjacent areas.

Investors should understand the value of a diversified portfolio that includes exposure to a wide range of industries. Sometimes if you leave a type of stock out of stock, it can end up costing you, as we’ve seen with energy so far in 2022.

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Dan Caplinger has no position in the stocks mentioned. The Motley Fool recommends Vermilion Energy Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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