After Getting Crushed by the S&P 500, These 2 Catalysts Could Push Vanguard’s Energy ETF Higher | VDE Stock

The energy sector hasn’t been the most profitable place to invest over these past three years or so. Since its 2022 peak, the Vanguard Energy Index Fund ETF (NYSEARCA:VDE) — my go-to way to gauge how the U.S. energy scene has been faring — is quite flat, actually down by a percentage point. All the while, it’s been off to the races of the S&P 500, which many investors hope is going for that so-called “three-peat” or three straight years of gains of 20% or more. It would be a historic feat if the S&P 500 could pull it off.

In prior pieces, I urged investors not to get their hopes up, given the price of admission going into 2025 was quite stretched and that the leadership group (the Magnificent Seven) was starting to experience a bit of sluggishness after going strong for so long.

In any case, just because the S&P 500 is trading at a premium to historical averages does not mean there’s no value to be had in this market. It also doesn’t mean we’re headed for a brutal bear market that will cause a sell-off in just about everything. The energy patch, which actually shined in 2022 when the S&P 500 fell into a bear market, could stand tall even if the S&P 500 were to fall flat in 2025.

Going into the second half of the decade, there are a few potential catalysts that I believe could help the forgotten large-cap energy plays make up for lost time.

Attractive valuations could precede a sustained rally.

As the saying goes for consolidating stocks, “the higher the base, the higher in space.” With the VDE stuck in a multi-year consolidation channel (a sideways correction, if you’d prefer), perhaps it would be an opportune time for value-conscious investors to show more appreciation for the energy firms that may be able to move higher without so much help from the rest of the market.

At the time of writing, the VDE boasts a mere 13.7 times price-to-earnings (P/E) multiple, far lower than that of the S&P 500, which has a P/E of around 27.5 times—quite the valuation difference!

The VDE’s beta, which currently sits at 0.87, implies a slightly low correlation to the S&P 500. In any case, if the U.S. economy takes a hit to the chin at the hands of Trump tariffs, perhaps there’s no avoiding any sort of “everything sell-off,” even if you’re hiding in the underperforming energy sector.

In any case, the modest multiples and relatively high yields, I believe, make the energy scene worth a second look if you’re growing tired of the Mag Seven as they continue to hog the headlines. Perhaps the VDE and energy ETFs like it are the anti-Mag Seven!

Trump’s pro-energy stance bodes well for big oil.

Perhaps the most exciting catalyst for big energy is President Trump’s strong stance on oil and gas. As the Trump administration removes regulatory roadblocks from big energy producers while hitting the pause button on various offshore wind projects, perhaps the “drill, baby, drill” mindset could be the spark that helps nudge towards a breakout moment of sorts.

With the National Energy Dominance Council aiming to prioritize oil and gas production, perhaps new records could be shattered under the Trump era. Either way, big oil stands to benefit greatly as new energy projects look to get the green light faster.

A year of efficiency for big oil?

Finally, it’s not just AI that stands to become more efficient in the coming years. The energy producers could be in for a year of efficiency of their own. Big oil firm Chevron (NYSE:CVX), the VDE’s second-largest holding with a 13.5% weighting, is shooting to reduce structural costs by as much as $3 billion by 2026’s end.

With the company to lay off up to 20% of its workforce, it seems like the energy colossus is serious about not only meeting its cost-saving targets but perhaps smashing through them. Either way, Chevron could set the tone for the rest of the industry going into 2026, as Meta Platforms (NASDAQ:META) did for the mega-cap AI innovators.

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