After a choppy start to the summer, the energy sector is suddenly heating up again. While many investors remain laser-focused on mega-cap tech stocks and trendy AI names, it's worth pointing out that the S&P 500 Energy Sector SPDR (XLE) closed out July on a gain of 7.8% - easily besting last month's 2.6% advance for the S&P 500 Technology Sector SPDR (XLK).
Despite the positive momentum in recent weeks, the energy sector still appears relatively undervalued when compared to the broader S&P 500 Index ($SPX). The S&P 500 Energy Index is trading at a forward price/earnings ratio of 11.7, compared to 19.8 for the SPX. This suggests the energy sector has room to extend its outperformance in the near term.
