By Avi Salzman

Energy stocks are the market's big winners so far this year, jumping 20% when the S&P 500 is up a measly 2%.

There are practical reasons why energy is the best sector in the market today. Most importantly, war is back in the headlines, with the U.S. intervening militarily in Venezuela and potentially in Iran too.

But analysts and investors point to another reason behind the surge -- investors are finding a haven in energy as betting on tech gets trickier. The artificial-intelligence trade is no longer lifting all boats, and some tech stocks have fallen by double-digit percentages this year because of fears that AI will erode their market share. Energy, however, can't easily be displaced by chatbots. And doesn't trade in line with tech, making it one of the rare outliers in the market.

"Energy does tend to have the lowest correlation of any sector to the S&P as a whole," said Nicholas Colas, co-founder of DataTrek, in an interview.

Energy stocks are also rising because of investors' larger shift into some of the sectors that didn't do well in 2025. Colas points out that consumer staples have also been outperforming the market, rising about 13% this year after a weak performance last year.

"I think it's spawned by a little bit of a -- this is kind of a coarse term -- but a dash for trash," he said. "The groups that did the worst last year are in most cases doing the best this year."

Other analysts agree that the investor shift is a big reason behind the move. Daan Struyven, head of oil research at Goldman Sachs, wrote Tuesday that the "recent investor rotation to hard assets, including commodities" has added about $6 per barrel to oil prices. The international oil benchmark price is up about $9 this year, to a recent $69 per barrel.

Energy's outperformance is particularly interesting because the sector's near-term prospects are just so-so. Colas pointed out in a note last week that analysts have reduced their earnings growth expectations for energy stocks more than any other sector this year.

"In fact, it is the only S&P sector where the Street is expecting flat earnings in 2026 versus 2025, he notes."

Large energy stocks like Exxon Mobil and Chevron have led the charge. Exxon has already hit multiple all-time highs this year. It makes up the largest position in the State Street Energy Select Sector SPDR ETF, an exchange-traded fund tracking the energy stocks in the S&P 500. But small energy stocks have done well too. The Invesco S&P SmallCap Energy ETF is up 21% this year.

The growing appeal of energy stocks might also have to do with optimism about traditional energy's long-term future. As recently as two years ago, the energy transition looked like it was gaining steam. Resources like solar and wind power, and electric vehicles, were spreading fast enough that analysts started to predict oil demand might peak in the next few years. But challenges in scaling the technologies, and efforts by President Donald Trump and other politicians to prioritize fossil fuels, have slowed the transition.

Energy trading company Vitol said this week that it is pushing back its expectations for oil's peak to the mid-2030s. A year ago, it had predicted that oil demand would start to decline in the early 2030s.

Citi analyst Alastair Syme says investors are starting to realize oil might be around longer than previously expected.

"We believe markets are positively re-evaluating the role of oil and gas and the sector's terminal value," Syme wrote in a report last month. The stocks still aren't fully accounting for the shift in oil's trajectory, Syme argues. As of last month, valuations of big oil companies assumed flat oil demand growth, even though there's evidence that demand is still on the upswing, he noted.

Colas says the shift into energy stocks may continue, given investors' jitters about AI. Energy's unique trading patterns are one reason why he tells diversified investors to never be underweight energy stocks. They make up less than 4% of the S&P 500, but they prove their mettle when other parts of the market are wavering.

Write to Avi Salzman at avi.salzman@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 11, 2026 14:05 ET (19:05 GMT)

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