Why Energy is the Sector to Trade in 2025

It's going to be a rollercoaster for energy - just like 2022.

Action to Take: Markets kick off 2025 with familiar headwinds as China's disappointing manufacturing data weighs on global sentiment despite promises of economic support. While U.S. futures look ready to bounce this morning, the broader challenges aren't going away. If you haven't dug into our 2025 outlook yet, take some time to review it. These seven trends will define the year ahead and shape the biggest opportunities in the market.

Additionally, we've mapped out several beaten-down names that look primed for a comeback once momentum stabilizes, focusing on quality companies trading at deep discounts to their assets with strong F-scores and compelling valuations. You can see the list of companies here. We'll track all recommended positions in our model portfolio, providing updates on key technical levels and movement around their 20-day moving averages.

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Momentum: The year closed with deepening technical weakness as the S&P 500 and Nasdaq fell 0.43% and 0.90%, respectively. Both indices show retreating RSI and MFI indicators while strengthening ADX readings, which indicates accelerating negative momentum. The Russell 2000 eked out a modest gain (+0.13%) despite broader market pressure. Though far too early to call, improving technicals could hint at potential value rotation ahead.

Insider Buying: Not a lot of Action, SEC Closed for New Year

• The ratio of Buys to Sells: 1:22 ($4m to $90m)

• Top Buy: $2m of KALA Bio (KALA) by 10% owner Baker Bros Advisors LP

• Top Sell: $14m of Workday (WDAY) by 10% owner David Duffield

Liquidity: The 10-year yield remains above 4.52% despite recent Fed rate cuts.

According to CNBC and Evercore ISI data, stocks have historically struggled when yields maintain these levels, dropping 2.1% during periods above 4.5%. With nearly $8 trillion in Treasury refinancing ahead, 2025 will be quite an event.

Market outlook:

• Futures are UP: S&P +94bps, Nasdaq +117bps, Russell +107bps

• 10-year yield retreats to 4.52% amid rising bond volatility to start 2025

• Crude edges higher as API reports sixth straight inventory draw; WTI rises to $72.72

• Drugmakers to hike prices on 250+ medications starting January 1; Pfizer (PFE), Bristol Myers (BMY), and Sanofi (SNY) lead broad increases

• Ukraine halts Russian gas transit to Europe as its wartime deal expires; neighbors brace for winter power cuts.

• Chinese state hackers breach Treasury's sanctions office; officials warn sensitive data compromise.d

• East Coast ports brace for January 15 strike as longshoremen battle automation; Hapag warns of $1,700 container surcharges

• Bank of England’s first repo of 2025 hits second-highest on record as banks seek short-term funding.

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Dear Fellow Expat:

Good morning:

We kick off this morning with markets getting too optimistic about Xi Jinping’s Tuesday speech promising to support the beleaguered Chinese economy. This morning, oil prices increased (not an issue since we’re trying to exit an Occidental trade at Insiders).