Jason's World

The recent collapse of Silicon Valley Bank and Signature Bank have only added to the economic uncertainties that are in store for 2023.

Amidst the growing anxiety among investors over the state of the tech and financial sector, they found an unlikely safe haven in the energy sector.

This shows how investors are adjusting their portfolios to a more value-oriented strategy instead of the growth-oriented strategy of the past two years.

The prosperity enjoyed by investors during the ls two years since the end of the lockdowns came from a dramatic surge in tech stocks, reveled for the immense potential they might bring. The hype was fueled by the low interest rates environment that was in place during the past two years. Stocks like Peloton, Rivian and Nvidia soared through the roof.

However, interest rates will not stay low forever, and as the pandemic subsided, consumers increased their spending, and inflation took off.

The Fed had to intervene to rein in prices. However this meant that the low-rate environment that led to the boom times for investors in 2021-22 would be under direct threat.

The crypto failures of 2022, fueled by the devaluation of many cryptocurrencies, made things worse. Instead of more growth, growth investors now face a reckoning as the low interest rate environment that fueled business hype gradually erodes.

As rates increase, less capital is available to businesses, limiting their ability to grow. Therefore it’s natural for investors to focus on industries that have a durable foundation, like energy. “Rates are moving higher, and therefore we’re looking for value. That’ll be the strategy and the playbook for this year,” said David Kostin, chief US equity strategist at Goldman Sachs.

This is why Warren Buffett has invested another $11 billion into Occidental Petroleum over the past year: Occidental is doing the things that shores up its value as a company, such as paying off its debts and in increasing its dividend.

The energy sector, however, is not without its troubles: oil prices aren’t in a good spot, even as the war between Russia and Ukraine continues to rage on. Last week, the price of West Texas oil fell to $70, the lowest since 2021.

However, given the chaos among the tech industry with their layoffs that have been happening, the energy sector, at least for now, seems relatively well-positioned to weather the current turbulences in the market.