The Q4 oil, gas and coal rally: resurgence or dead cat bounce?

The Russell 2000 Index closed out 2020 with a roar, surging 31.4% in the fourth quarter and posting its highest ever monthly return in November. A closer look at performance on a sector level reveals Oil, Gas and Coal as the third highest performing Russell 2000 sector for the quarter, bolstered by resurgent hopes for a quicker US recovery from the pandemic crisis.

However, while Oil, Gas and Coal delivered 50.1% for the quarter, it was far from one of the highest contributors to the Russell 2000 Index return—a result of its relatively small weight in the index. And if we look back over the past decade, we can observe that Oil, Gas and Coal has been on a steady decline, leaving us to wonder whether the Q4 rally is sustainable or merely a dead cat bounce.

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