Energy Musings - March 31, 2026
Energy was the S&P 500 Index sector winner in March and the first quarter of 2026.
Energy On Top For March And Q1
It was not surprising that Energy was the top-performing sector in the Standard & Poor’s 500 Index for March and the first quarter of 2026. In March, Energy posted a 10.4% gain, the only sector to post positive performance. The S&P 500 posted a 4.98% loss. The month was not good, dominated by global economic turmoil stemming from the Iran war.
Energy was the top performer in the first quarter, leading the six sectors with gains over the three months. The overall market, however, could not muster a gain, as the S&P 500 Index is heavily weighted by information technology, telecommunications services, financials, and consumer discretionary – all sectors that have driven the market in recent years.
The war-driven oil price spike drove energy sector performance in March.
For the quarter, Energy’s 38% performance was nearly four times that of Materials, the second-best performer. S&P Global noted that U.S. equities “navigated a turbulent first quarter.” It cited three factors driving the turbulence: tariffs, concerns about Artificial Intelligence and employment, and worries about the private credit market. The turbulence escalated with the outbreak of the Iran war, reigniting fears of stagflation and eliminating prospects for a Federal Reserve interest rate cut. In fact, the odds of a Fed rate hike to stifle inflationary forces are growing.
The Iran war oil price spike.
The buildup of military forces in the Middle East during February began to push oil prices higher. Once the military attacks began, the Strait of Hormuz was closed, initially because war risk insurance for vessels was canceled, making it too risky for them to attempt to pass through the strait, and later due to Iranian attacks on shipping. Iran began attacking energy-producing assets in Persian Gulf countries, besides attacking ships. With 20% of the world’s oil and natural gas, as well as significant volumes of petrochemicals, fertilizers and components, and helium needed for semiconductor manufacturing, the world’s economy has been disrupted. The first shortages of these supplies are being felt in Asian countries, and the fallout will last for some time.
The stock market and oil price levels will depend on developments in the Middle East war. If the war ends, expect oil prices to fall, although the industry’s recovery will take longer than for oil prices to fall. Depending on the war, we would not be surprised if energy stocks did not lead the market in April. The longer-term outlook for energy is improving, as the prospective global oil glut will shrink due to the extended closure of the Strait of Hormuz.