Energy stocks offer a hedge against market volatility, advisors say

The best way to protect against market volatility in the midst of the current geopolitical crisis is to own energy shares, not tinker with client portfolios, advisors say.

Crude oil crossed the $76 per barrel mark today in the wake of the Iran war. That’s a spike of 16% from last week and 31% since the start of 2026.

Meanwhile, the State Street Energy Select Sector SPDR ETF (Ticker: XLE), which holds major oil producer stocks including Exxon Mobil (Ticker: XOM) and Chevron (Ticker: CVX), has jumped over 3% in the past week and more than 27% year-to-date.

Yet, despite the surge in the price of black gold (for the record, real gold is essentially flat since hostilities started), Mike Martin, vice president of market strategy at TradingBlock, is advising against making major changes to investment portfolios based solely on the recent strikes in Iran.

“Historically, geopolitical events often create short-term volatility without changing long-term fundamentals. That said, some portfolio hedging may be appropriate. With the VIX up roughly 10% as of Monday morning, option premiums have already expanded,” Martin said.

In his view, more disciplined investors may prefer to wait for volatility to cool before implementing a more prononced hedging strategy.

Added Martin: “I almost always look at energy as a hedge. Energy has historically exhibited lower correlation to other asset classes during inflationary or supply-driven shocks.”

Along similar lines, T.J. Kistner, chief investment officer with Retirement Plan Advisors, affiliated with Cambridge Investment Research, says the events that took place over the weekend have not caused him to make changes to client portfolios. At this point, he says much is unknown regarding the severity, duration, and magnitude of the military action, and he thinks any attempt at positioning portfolios to capitalize on a specific outcome is extremely risky. 

”We felt the backdrop of rising global growth was a tailwind for the energy sector heading into the events over the weekend, but we wouldn’t advise making tactical bets on the sector solely on the expectation that oil prices will spike. We would expect volatility, but the ability to effectively and consistently trade around that is extremely difficult,” Kistner said, adding, like Martin, that energy has provided hedging benefits to exogenous shocks in the past, which can be valuable within a diversified portfolio.

Elsewhere, when it comes to the impact of surging crude prices, Noah Barrett, research analyst at Janus Henderson Research, believes that even if the region’s energy assets remain online, any reduction in shipping activity through the Strait of Hormuz could lead to sustained higher energy prices.

“As the energy market finds itself in the middle of these developments, we believe investors should prioritize defensive positions such as large-cap integrated exploration and production companies, as well as midstream players. Many of these companies have a diversified set of assets that extend across geographies and products, thus dampening their exposure to the region and to global crude,” Barrett said.