Stocks Finish Mixed; Is the Energy Sector Dying?

Stock market investors have had to deal with a huge range of conditions during 2020, both in terms of the ups and downs of expectations and the relative performance of different sectors of the market. On Friday, stocks were largely higher during much of the day, but major market benchmarks pulled back toward the end of the day to finish mixed. The Nasdaq Composite (^IXIC -0.52%) performed the worst, while the Dow Jones Industrials (^DJI 0.06%) finished with a triple-digit gain and the S&P 500 (^GSPC -0.22%) was close to unchanged.

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By far the worst performer among sectors in the stock market during 2020 has been energy. The Energy Select Sector SPDR (XLE -0.31%) finished down more than 2% Friday, bringing its losses for the year to date to an even 50%. As more players in the oil and gas sector give discouraging news about the future of the industry, investors are finding it increasingly difficult to maintain confidence. Friday's biggest loser was Schlumberger (SLB 0.26%), a major player in the oil services arena, showing just how widespread the pain is across the energy sector.

Schlumberger can't shake its losses

Shares of Schlumberger fell almost 9% on Friday. The oil-field services company managed to outpace expectations on its bottom line in its third-quarter financial results, but other worries gave shareholders more heartburn.

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The numbers at Schlumberger were ugly. Revenue plunged 38% from year-ago levels and dropped another 2% even from the hard-hit second quarter of 2020. The company's net loss was far lower than in the prior-year period, but that was solely because of a lack of impairment charges similar to the scope that Schlumberger saw at this time in 2019.

Schlumberger has worked hard to try to restructure itself to maximize efficiency. Strategic moves including divestitures and business combinations are playing a role in cost savings, and the company is trying to identify its best opportunities for long-term growth even under challenging industry conditions.

Yet there's still really no relief anywhere in Schlumberger's portfolio of business units. The production segment managed to boost revenue sequentially from three months ago, but segment sales are still down 43% from the same period a year ago. Meanwhile, drilling and reservoir-related revenue, as well as sales from its Cameron unit, continued their downward spiral.

Spreading across energy

The news was bad enough to send shares of most energy companies down in sympathy. Even on a day on which oil prices stayed above $40 per barrel, oil-field services peer Halliburton (HAL 1.60%) was down more than 6%. On the production side, the biggest oil majors were down only slightly, but Occidental Petroleum (OXY 0.09%) posted a 5% loss. And in the refinery industry, Valero Energy (VLO -2.86%) suffered a 3% drop, which was indicative of how most other players in refining performed.

At this point, energy has become almost irrelevant to the stock market more broadly. Energy stocks now make up just 2% of the total weighting in the S&P 500. That puts the sector below even the small contributions that utilities, real estate, and materials stocks play in the benchmark index.

What's happened in the past is that low oil prices have forced companies that are making only marginal profits to shut down their operations, cutting production and allowing the energy markets to reach a new equilibrium. But with geopolitical forces at play, it could be years before that supply-and-demand balance asserts itself. In the meantime, there could be even more pain for hard-hit energy stocks -- and not all of them are likely to survive.