The four oil supermajors, Exxon Mobil Corporation (NYSE:XOM), BP plc (ADR) (NYSE:BP), Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B), and Chevron Corporation (NYSE:CVX) haven’t performed too well since 2008. Not a single one of these managed to beat the S&P 500 index or the Dow Jones Industrial Average over this period. The S&P 500 rose 55% since 2008, while the Dow Jones rose 51%.

The performance of the four supermajors since then leaves much to be desired. Only Chevron can claim a positive return (up 18%), and that’s just in nominal terms, before we adjust for CPI inflation.

Why might this be?

In a word … expectations.

The performance of a stock is a function of both fundamentals and the market’s expectations. If the market expects a lot from a stock, the stock will likely disappoint. They will be overvalued and brittle, and when they surprise on the downside, the stock price will take a hit.

Conversely, stocks that the market expects little of are more likely to be undervalued and surprise on the upside, driving superior performance over the years that follow.

In other words, stock market performance is inversely proportional to the market’s expectations.

People expected little from oil companies in 1999, a year when oil prices were low and tech stocks boomed. In the years that followed, oil companies outperformed the market as tech stocks hit a brick wall and oil prices rose.

Conversely, people expected a lot from oil companies in 2008, when oil traded at $150 a barrel. Over the next few years, from 2008 to 2017, oil stocks lagged the market.

I think 2017 resembles 1999 more than it resembles 2008; now may be a good time to start adding oil companies like XOM stock to your portfolio.

1999-2008: Tech Stocks Lag, Oil Stocks Lead

Let’s look at the years following 1999. Here, the oil companies performed much better than the market.

Exxon stockled the pack, increasing 110% from 1999 to 2008. Chevron stock rose nearly 90%, and Royal Dutch Shell 14%, beating both the S&P 500 and the Dow Jones. BP was the laggard among the supermajors, posting only a 2.8% increase, which beat the S&P 500 but not the Dow. Clearly, a portfolio of oil stocks would have outperformed the market from 1999 to 2008.

In 1999, expectations for future oil prices were low, and both oil prices and XOM stock reflected this. The chart below shows crude oil prices in both real (inflation-adjusted) and nominal dollars. In 1999, oil prices had bottomed out.

People fought over dotcom stocks in 1999, not oil stocks like Exxon. Because of these low expectations, oil stocks outperformed the market over the next nine years.

Tech stocks would have made a worse investment; they underperformed the S&P 500 and the Dow from 1999 to 2008. Expectations for tech stocks were quite high in 1999; the Nasdaq Composite traded at 100 times forward earnings. As a result, those who bought tech stocks in 1999 saw a decade of low returns.

To summarize: oil prices in 1999 were low, and oil stocks outperformed the market over the next few years. Tech stocks were high in 1999, and underperformed the market from 1999 to 2008.

2008: Oil Stocks Lag, Tech Stocks Lead

2008 was very different. Oil prices were at their all-time highs. Books were being written about peak oil, and people worried that the world was running out of oil. And oil prices reflected this, hitting $150 a barrel in July 2008.

Expectations for future oil prices were high, and returns on oil stocks like Exxon-Mobil over the next 9 years disappointed, as we saw in the first chart.

On the other hand, tech stocks outperformed the market from 2008-2017.

2008-2017 was the converse of 1999-2008. In 2008, investors still felt a bit wary of tech stocks, as they remembered the 1999/2000 bubble. On the other hand, they loved oil stocks.

So over the next nine years, tech stocks outperformed the market, while oil stocks disappointed.

2017: Will Oil Stocks Lead, and Tech Stocks Lag Once Again?

Today, in 2017, instead of reading about “peak oil”, we’re reading about “peak car” and “peak energy demand”. And as I wrote in February, new technologies from companies like Tesla Inc (NASDAQ:TSLA) could shift the balance further. Everyone thinks supply will outstrip demand in 2017, just as they thought demand would outstrip supply in 2008.

Once again, energy prices are low, reflecting expectations of future supply and demand. As Bank of America noted earlier this year, energy consumption as a share of global GDP in 2016 was 3.5%, the lowest level since 1999.

I think the market may be overreacting now on the opposite end. The market was wrong about peak oil in 2008, and they’re probably wrong about peak demand in 2017. People do linear extrapolations of current trends when they should be thinking of energy as moving in a cyclical manner, with both positive and negative feedback loops.

Bottom Line on XOM Stock

When energy is cheap, people tend to use more of it, ensuring robust demand growth. Energy prices then go up, incentivizing people to use less and invest in new energy-saving technology. Oil companies ramp up their exploration efforts, and try to find ways of getting more oil from their wells. Eventually, prices fall, and the cycle repeats itself again.

Years of strong performance tend to follow years of poor performance. Bank of America analysts noted that the ten-year rolling return for commodities is now the worst since 1933. Commodities and oil stocks like Exxon stock may not have made the best investment over the past 10 years, but what about the next 10?

Now might be a good entry point; buy XOM stock to profit from this cyclical process.

As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.