Energy Musings - August 2, 2025
Energy had a successful month in July finishing in fourth place, the same as the prior month. The sector's July gain was less, as was the overall stock market. Oil prices were surprisingly flat.
Energy Had A Good Month In July
One month of the third quarter is in the books. The energy sector fared well, posting a 2.8% gain for July and finishing in fourth place among the 11 industry sectors that compose the Standard & Poor’s 500 Stock Index. The past two months’ results have contributed to the sector’s year-to-date performance of a positive 3.7%.
Energy landed in the same spot in July as in June.
The solid gains of June and July, however, were unable to keep energy from posting a negative 3.2% performance for the last 12 months. Energy was one of three sectors showing losses for the 12 months, falling between materials (-2.9%) and health care (-11.3%).
Surprisingly, average oil prices were flat in July.
Energy’s performance in July was helped by oil prices that surprisingly averaged almost precisely the same as in June. The chart of average monthly oil prices compared to the energy sector’s performance shows a surprisingly positive stock market performance early in the year, despite oil prices declining consistently. Oil prices declined every month for the first five months of 2025, falling from $75 to $62 per barrel. The rebound in oil prices from the May low to $68 for both June and July explains the better performance of energy.
Understanding how correlated energy stock performance is with oil prices, we only need to look at what was responsible for energy’s loss over the last 12 months. Energy can point to the disastrous outcomes of April 2025 (-13,7%) and December 2024 (-9.5%) for its results.
Where do oil prices go from here? The first day of August was not a good day for oil prices or stock prices. Trump’s announcement of a universal tariff and disappointing labor figures for July have raised the prospect of a recession. The disappointing 73,000 additional jobs added for July were even worse once the Bureau of Labor Statistics revised its job addition figures for the past two months by a cumulative negative 258,000. That brought the three-month average of job additions to only 35,000, the lowest monthly rate since the early months of COVID. Additionally, the labor force participation rate declined, and unemployed workers spent longer seeking jobs. A weak labor market will pressure the Federal Reserve to cut interest rates at its next meeting in mid-September and potentially again in December.
Friday was a bad day for stocks. The Dow Jones Average dropped 542 points, the Nasdaq by 472 points, and the Standard & Poor’s 500 Index by 101 points. Eight of the 11 S&P 500 sectors declined on the day; energy’s 1.5% loss was slightly less than that of the index (-1.6%). Of course, oil prices fell on the prospect of future economic weakness, dropping by $1.90.
Whether a recession develops depends on many variables, all of which are uncertain. Buckle up. The Dog Days of Summer may prove more active than usual.