“The only sector up on the year is energy, and that’s what we’ve been highlighting for a couple of weeks now in terms of the next potential pain point for investors,” Ms Xu said. “The risk of recession means that further upside in the sector is likely limited.”
The energy sector in the S&P 500 is up 32 per cent this year, the only subgroup of the index still in the green.
Oil prices are unlikely to drop as China’s fuel demand is reviving and the market is struggling to increase supply, according to Russell Hardy, chief executive officer at Vitol Group, an independent oil trader. “The market’s a little bit concerned that we’re running out of spare capacity and is beginning to factor that into prices,” he said at a forum on Tuesday.
Others are more bearish.
“A declining price profile across most mining and energy commodities is justified in light of a weakening demand outlook,” said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia.
The outlook for rising prices “is likely contingent on China relaxing its Covid‑zero policy,” he wrote in a note Thursday, referring to Beijing’s preference for mobility curbs to stamp out virus outbreaks.
That path ahead for raw-material prices is crucial to global markets. Sustained declines may help curb inflation expectations and allow central banks to slow the pace of interest-rate hikes, potentially bolstering stocks and bonds.
“Falling commodities should be welcomed, as it breeds disinflationary pressures,” Chris Weston, head of research at Pepperstone Group, wrote in a note. “This dynamic becomes far more bullish for equities if it’s driven by the perception of rising supply, not demand concerns, which seems to be the case now.”