The S&P 500 closed out 2024 with strong gains, fueled by optimism around AI and interest rate cuts. While the energy sector saw moderate growth, midstream companies outperformed, driven by strong fundamentals and dividend growth. Upstream and refining companies faced challenges, but a favorable regulatory environment under the incoming Trump Administration offers opportunities for 2025.
The S&P 500 finished 2024 with a total return of 23.3%, building on its 24.2% gain in 2023. Despite a weaker finish to the year, the index achieved 57 record closes, driven by optimism around artificial intelligence (AI) and the Federal Reserve 's interest rate cuts. Every sector in the index recorded gains for the year, but seven of the eleven sectors underperformed the broader benchmark, while five delivered returns of at least 20%. Artificial intelligence stocks led the market's surge.
Nvidia's impressive 171% gain and Broadcom's 108% rise exemplified the sector's transformative potential, propelling both companies to new heights. Consumer discretionary stocks outperformed in the fourth quarter, delivering double-digit returns, while the health care and materials sectors faced double-digit losses in the same period. The energy sector delivered a modest total return of 5.6% in 2024, reflecting a year of moderate energy prices and uneven performance across its subsectors. While upstream producers and refiners struggled, the midstream segment delivered standout results, driven by strong fundamentals and dividend growth. Midstream companies led the energy sector with an average total return of 20.8%. Targa Resources Corp. was the top performer, delivering a remarkable 110.1% return. Upstream companies, pure oil and gas producers, recorded an average gain of only 1.5%. The refining segment endured a tough year, with the 'Big Three' refiners, Marathon Petroleum, Valero, and Phillips 66, posting an average decline of 6.2%. Integrated supermajors fared slightly better but still ended the year down an average of 3.1%. ExxonMobil was the standout performer, gaining 11.3% for the year, while Chevron also eked out a 1.3% gain. Looking Ahead to 2025, the energy sector faces both opportunities and challenges. A more favorable regulatory environment under the incoming Trump Administration is expected to benefit oil and gas operators, but industry profits will ultimately hinge on commodity prices. OPEC continues to maintain production cuts, but record U.S. oil output has dampened upward pressure on oil prices, which weighed on profits in 2024. This dynamic is likely to persist in 2025, keeping a lid on significant price increases and resulting in modest profitability for the sector. While the energy sector may see limited upside in the near term, segments like midstream, with their stable cash flows and attractive yields, remain well-positioned to deliver value to investors. For upstream and refining companies, a focus on cost efficiency and operational resilience will be critical in navigating the challenges of 2025. In short, the energy sector's status quo of moderate prices and selective outperformance by subsectors is expected to carry into 2025, offering measured opportunities for investors willing to navigate its complexities
ENERGY SECTOR STOCK MARKET AI FEDERAL RESERVE MIDSTREAM UPSTREAM REFINING TRUMP ADMINISTRATION COMMODITY PRICES
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