I continue to think that the energy sector is due for a period of leadership after more than three long years of relative underperformance.
Energy's behavior tends to be closely linked to that of materials, which relative to the S&P 500 (INDEXSP:.INX), bottomed around July of last year.
In many ways, the best US sectors for playing emerging market stocks are energy and materials given that most emerging economies are largely natural resource and exporting plays. That, in turn, means that if one is making an active tactical bet on cost-push inflation, energy in particular should be on your radar.
Note that the ratio (see chart) has been bottoming for the last several weeks. Should this hold, I suspect it will coincide with an emerging markets melt-up and another broader push higher in equities.
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Editor's Note: For more of Michael Gayed's thoughts on energy, check out this interview.
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