Brent crude oil is up over 13% in the past month and 75% year-to-date to almost $110 per barrel. At the same time, the S&P 500 is up almost 4% in the past month and a healthy 7% so far in 2026.
Wait a second! Given oil's historical impact on inflation, interest rates and consumer confidence, shouldn’t stocks be tumbling right now? Why is this relationship not inverse like it used to be?
Juan Xavier Sánchez, head of wealth strategy at Activest Wealth Management, for one, is staying constructive on markets despite the “noise” coming from the oil patch.
“Yes, oil is adding inflation pressure and the rate environment is trickier than it was six months ago. But corporate earnings have been resilient, the AI buildout is creating a real secular growth story, and the underlying economy is still expanding. We think the market can handle higher for longer rates as long as earnings hold up, and so far they are,” Sanchez said.
Despite short-term volatility from geopolitical events like the Middle East conflict, Sanchez thinks the bigger story in markets right now is AI. He points to data from CreditSights saying that hyperscalers are on track to spend over $700 billion in capex this year, with roughly 75% going straight to AI infrastructure. In his view, that trend is not slowing down and companies across every industry are paying for cloud, LLMs, and agents, and “that cash has to go somewhere.”
“We favor the picks-and-shovels layer over the hyperscalers themselves right now, specifically semiconductors, power infrastructure, data center REITs, and cooling, where the capex flows directly and the margin story is cleaner. The AI buildout is the dominant investment theme of this cycle, and we don't think geopolitical noise changes that,” Sanchez said.
As for the biggest risks elevated oil prices pose from here, and what could change his point of view, Sánchez points to the potential for inflation to remain sticky, which would keep the Fed on hold longer than the market wants. He notes that rate cut expectations have been completely priced out, and according to CME FedWatch, the probability of an actual rate hike by year end has jumped to around 45%, up dramatically from near zero just a month ago.
“That is a very different environment than what most investors were positioned for at the start of the year, and higher rates pressure both growth stocks and borrowing costs across the board. What would make us feel more comfortable: a real de-escalation in the Middle East, OPEC surprising to the upside on production, or inflation data that shows meaningful cooling, any of which would take meaningful pressure off the Fed and reduce the tail risk we are watching closely,” Sanchez said.
Steven Wieting, co-founder & CIO of CIO Group, meanwhile, says he would not be chasing energy-related shares higher in reaction to the still unresolved war. He is currently maintaining a neutral weight as the world was largely over-supplied with oil prior to the war in his view.
“Ahead of the conflict, we added energy-infrastructure investments such as natural gas pipelines and exporters as an overweight. There are still a wide range of possible outcomes for the oil price. We would not sell here but rather add a variety of energy investments if there was a significant price drop,” said Wieting.
As for the energy shock itself, and its impact on the greater economy, Wieting says it represents a growth constraint that raises prices.
“Gold is failing to perform well now because it rose very sharply on momentum buying in an exaggerated way before the conflict. One solid investment now is short-duration Treasury Inflation Protected Securities,” Wieting said.
Finally, Abe Sheikh, chief investment officer at Cordoba Advisory Partners (CAP), is bearish on oil, given President Trump’s sensitivity to high oil prices, pain Americans are already experiencing at the pump and approaching midterms. According to Sheikh, high oil prices are not a significant risk to the S&P 500 margins given the dominance of tech and general resilience of the U.S. consumer to high oil prices.
The real impact in his view is at the sector level, where airlines, logistics, and basic materials face clear margin pressure from higher fuel and input costs even as upstream energy producers benefit from elevated prices.
“If energy prices and inflation do not subside, elevated rates could tighten financial conditions. Should the conflict re-escalate alongside restrictive monetary policy, the combined pressure would accelerate cracks in both credit formation and labor market stability, which would make us bearish,” Sheikh said.
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