Wall Street's forgotten sector is back on top
For years, energy stocks sat in the S&P 500's basement. That run ended abruptly in 2026.
The sector has rallied more than 24% year to date, crushing every other corner of the index. The S&P 500 itself? Up a measly 0.5%. That gap marks the widest energy outperformance at this point in the year since the 2022 commodity superspike triggered by Russia's invasion of Ukraine.
The Energy Select Sector SPDR Fund (XLE), the most widely tracked energy ETF, has climbed from a 52-week low of $37.24 to trade near $55.60, just shy of its all-time high of $57.88. Much of the rally predates the Iran crisis that sent Brent crude past $100 a barrel in early March.
The big names are printing new highs
ExxonMobil shares hit an all-time high of $159.60 on March 2 and are up roughly 19% for the year. Chevron has gained about 22%, touching a 52-week record of $191.56. Bank of America analyst Jean Ann Salisbury raised her Chevron target from $188 to $206, citing the company's heavy weighting toward Permian Basin assets, which sit far from any Strait of Hormuz risk. Salisbury models a $100 floor for Brent through the third quarter.
ConocoPhillips has posted a 26% gain, boosted by its integration of Marathon Oil assets. The $17.1 billion acquisition closed in late 2025 and has already doubled its original synergy target to more than $1 billion annually. Those onshore barrels look even more attractive now that Gulf shipping lanes remain disrupted.
Dealmaking heats up
The rally has not slowed the M&A machine. Devon Energy sealed a $21.4 billion all-stock deal to buy Coterra Energy in February, creating what both companies call a "premier shale operator" with dominant positions in the Delaware Basin. The combined entity will carry roughly $58 billion in enterprise value and pump more than 1.6 million barrels of oil equivalent per day, including 4.3 billion cubic feet of natural gas.
Devon CEO Clay Gaspar will lead the merged firm, with Coterra's Tom Jorden serving as non-executive chairman. Management expects $1 billion in annual pre-tax synergies by the end of 2027. The deal is set to close in the second quarter, pending shareholder votes and regulatory approval.
Why oil stocks and not just oil
Crude prices alone don't explain the rally. WTI traded at $86.90 per barrel on Tuesday, up 3.8% on the session, while Brent climbed to $91.07. Both contracts bounced sharply after Monday's 12% selloff, when Trump's diplomatic signals toward Iran briefly pulled prices down. Reports of fresh attacks on vessels in the Strait of Hormuz brought buyers back.
What's driving the stock premium is positioning. Fund managers spent most of 2025 underweight energy. The sector gained just 8.7% last year, ranking fourth from the bottom among S&P 500 groups. When the Iran conflict erupted and oil prices jumped, portfolio managers scrambled to add exposure.
Tech stocks, meanwhile, have stalled. The rotation out of megacap growth names into commodities and defensive plays has funneled billions into energy equities.
Oilfield services ride the wave
It's not just the producers. Oilfield services firms like Baker Hughes and SLB (formerly Schlumberger) rank among XLE's top holdings and have climbed alongside their exploration-and-production clients.
Rob Spivey, director of research at Altimetry, has singled out Baker Hughes and natural gas-exposed names as his top picks, arguing that the OPEC+ decision to add 206,000 barrels per day in April will keep demand for drilling services elevated.
What could stall the rally
The bull case rests on sustained geopolitical tension and tight supply. But risks cut both ways.
Monday offered a preview. Trump's comments about a diplomatic path with Iran sent WTI crashing 11.9% to settle at $83.45, with Brent dropping 11.3% to $87.80. Energy stocks led the S&P 500 lower, with XLE falling 0.4% on the day. A ceasefire or full reopening of the Strait of Hormuz would strip the supply premium out of crude and drag energy stocks lower with it.
The IEA has also asked member states to prepare a release of up to 400 million barrels from strategic reserves. If approved, that flood of supply could push Brent back below $80.
For now, though, energy remains the only S&P 500 sector posting double-digit gains in 2026. After years of underperformance, oil stocks have Wall Street's attention again.