In April 2020, crude oil prices collapsed amid the COVID-19 pandemic to 20-year lows. In late April, the price of USO dropped more than 30% to just above $2 per share and new trades were halted as the fund's managers began making structural changes in efforts to avoid a complete collapse. USO management then announced a 1-8 reverse share split for USO to go into effect after the market close on April 28, 2020. A reverse split reduces the number of shares outstanding into fewer and proportionally higher-priced shares. Such action is often interpreted by analysts and investors that the stock, or exchange-traded product, is having trouble holding its perceived value.
Still, USO was the most-bought name on Robinhood, a free stock-trading app that has attracted roughly 10 million, mostly millennial, users. By Wednesday, it was among the top 30 most-held names on Robinhood, according to the start-up.
The obvious answer would seem to be \"Yes, you should buy USO.\" After all, USO is still down 83%, making it a far better way to profit from a resurgence in oil prices than oil stocks like ExxonMobil or Phillips 66, down about one-third at recent prices.
USO is marketed as an exchange-traded instrument -- meaning it trades on a stock exchange -- designed to track the daily price of West Texas Intermediate crude oil. Sounds pretty simple, right But what's not simple is how USO's traders attempt to track WTI crude prices.
One way many oil market speculators have played oil's wild ride is through the United States Oil Fund (USO 2.07%). While that oil ETF has rallied along with crude prices over the past couple of weeks, it hasn't done a good job matching the daily price movements of WTI. Because of that, oil traders face the dilemma of whether USO stock is the right way to play the rebound in the oil market.
One of the issues with its game plan is that it often needs to pay a higher price to roll contracts into new ones before expiration. That price can be quite steep when oil futures are in contango, meaning the contract value in future months is higher than those expiring in the near term. This constant rolling has eaten into USO's returns over the long term. For example, from January of 2016 through the end of last year, WTI rallied 60%. However, USO stock only gained 16.5%, because of the impact of rolling and the fees it charges investors to manage the fund.
This underperformance has only gotten worse this year because of all the volatility in the oil market. Due to tracking issues, USO shares lost about 30% of their value over the past month, even though crude oil has gone on an epic run. Furthermore, because of the tracking problem, USO stock didn't hit bottom until April 28, a full week after WTI. Even from that later bottom, USO has only rebounded by about 40%, while WTI has zoomed 158% during that time frame.
If you were lucky enough to time a USO gamble perfectly so that it's profitable, you might want to consider selling before that gain evaporates, via USO's tracking issues or a sell-off in the oil market. Meanwhile, if you're considering buying USO on the belief that oil could continue rallying, you might want to rethink that. A better option would be to consider investing in a high-quality oil stock instead of this highly flawed trading vehicle.
The XLE ETF (XLE) is a market-cap-weighted, exchange-traded fund that invests primarily in US energy companies along with some energy equipment and services firms classified as \"oil and gas\" by GICS. Since a big chunk of XLE is concentrated in oil majors like Exxon Mobil (XOM), Chevron (CVX), and Schlumberger (SLB), I think viewing XLE as a basket of oil stocks is fair.
Now, technology companies (not stocks) have traditionally shown secular growth, i.e., less vulnerability to economic cycles. However, unlike 2007-08, technology is now ubiquitous, and big tech giants are severely exposed to economic cycles, as evidenced by the ongoing growth slowdown and earnings recession seen in their Q3 reports:
Barchart Opinions add market-timing information by calculating and interpreting signal strength and direction. Unique to Barchart.com, Opinions analyzes a stock or commodity using 13 popular analytics in short-, medium- and long-term periods. Results are interpreted as buy, sell or hold signals, each with numeric ratings and summarized with an overall percentage buy or sell rating. For example, a price above its moving average is generally considered an upward trend or a buy.
Did you know that you can support our service members through a wire or stock transfer Funds from all of our donations lead to expanding offerings at USO centers, connecting families separated during the holidays and can even provide assistance as service members transition home. Please contact the USO at [email protected] for transfer instructions.
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I assume you're stating that because the current price of the stock is more than what you paid for it. If you sold right now you may or may not have capital gains and you won't know that until you receive your Schedule K-1. That's because the activity shown on your Schedule K-1 changes your basis from its original purchase price. Very broadly, distributions of cash from the fund lower your basis (and are not income), losses attributed to your shares decrease your basis and income attributed to you increase your basis. Because of this there is no \"double taxing\" of income. So if the partnership happens to have income, taxed at ordinary rates, that lowers your capital gain, taxed at capital gains rates.
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It boils down to this: Inflation is bullish for oil and emerging markets stocks. And stocks in general do fine during periods of rising inflation, too. But you want to brace for losses from most types of bonds when inflation heats up.
This is a bit counterintuitive as energy sector stocks are typically included in value indexes and ETFs. And yet S&P 500 value stocks rose just 8% during inflationary periods. That's nearly half the 12% gain by growth stocks. And value stocks' return was half the 16% rise of cyclical stocks, which tend to rise and fall along with the strength of the economy.
And if growth is good, small stocks are even better. U.S. small cap stocks rose 15% during inflationary times since 2000. Presumably smaller companies serve niches with harder-to-substitute goods. That gives them some pricing power. Additionally, smaller companies are usually growing faster than larger firms.
Don't let the risk of inflation chase you out of S&P 500 stocks. Or stocks in general for that matter. The headlines are scary, but data since 2000 show stocks can still put up impressive gains amid inflation. 781b155fdc