Wall Street Analysts Warn of Potential Peak in Energy Stocks Amid Iran War
Investors seeking refuge in energy stocks during the ongoing conflict in Iran should exercise caution, according to prominent Wall Street research desks. Analysts from Jefferies Financial Group Inc. and Citigroup Inc. are signaling that the sector's remarkable rally may be approaching a peak, even as geopolitical tensions continue to influence oil markets.
Energy Sector's Stellar Performance
Even prior to the outbreak of war in Iran, the energy sector was the undisputed leader among the 11 sectors within the S&P 500 index. The oil and gas producing group has surged an impressive 29 per cent year-to-date, maintaining its dominant position despite a recent market rally fueled by optimism regarding potential normalization of ship traffic through the critical Strait of Hormuz.
For nearly two weeks since the conflict began, traders have continued pouring capital into energy equities. This persistent investment flow has occurred despite attempts by the White House to calm investor concerns about escalating oil prices through assurances that the current spike would be temporary.
Analysts Express Caution
"Are these equities discounting a higher price than what's being forecast? Probably so," noted Ben Cook, portfolio manager at Hennessy Advisors Inc., during a Monday phone conversation. Cook highlighted Wall Street's ongoing struggle to balance the risk of sustained higher oil prices against what he described as "Trump administration jawboning prices lower versus the more significant force of supply and demand fundamentals."
Jefferies analysts have observed "massive" inflows into United States active and passive funds focused on the energy sector. Their research indicates that the rolling 12-week total has expanded to approximately seven per cent of assets under management, a level that "dwarfs all but the most significant surges" witnessed over the past fifteen years.
Warning Signs Emerge
"This is within reach of toppish levels," cautioned Andrew Greenebaum, senior vice president of equity research product management at Jefferies, in a recent research note. Greenebaum pointed to dramatic shifts at the index level, where the weighting of energy stocks within the S&P 500 has increased by more than one-third—from roughly 2.7 per cent to 3.7 per cent—in just 55 trading sessions. These substantial movements suggest that "much of the positioning swing may have already happened."
Citigroup Research has echoed this cautious sentiment through its global sector-selection model, which shifted U.S. energy to a short position on Monday. This adjustment replaced utilities in their model and forecasts potential declines for the energy group over the coming month, while suggesting that technology, industrials, and financial sectors might deliver stronger performance.
Investor Behavior and Market Indicators
Raymond James analysts, led by Michael Barth, raised questions in a Monday client note about whether markets had partially anticipated the Iran conflict beforehand, given the substantial gains energy stocks had already achieved early in 2026.
Investment patterns reveal consistent weekly inflows into the State Street Energy Select Sector SPDR ETF throughout 2026, with the sole exception being the week immediately preceding the war's outbreak. This exchange-traded fund, which holds major corporations including Exxon Mobil Corp. and Chevron Corp., has attracted a total of US$5.5 billion in net inflows through the end of last week. This figure already surpasses any full-year total dating back to 2020.
A particularly telling indicator: the S&P 500 Energy index currently trades approximately 26 per cent above its 200-day moving average. Historical data shows this threshold has been exceeded in only four instances throughout the entire twenty-first century, suggesting the sector may be approaching overextended territory.
