Energy stocks have outperformed technology equities this year, making the energy sector the best-performing area on Wall Street despite the ongoing boom in artificial intelligence. According to a recent report, the S&P 500 energy sector has surged by 44.46% year-to-date, while the information technology sector has gained 23%.
Tracking funds for these sectors show a similar divergence. The State Street Energy Select Sector Fund (NYSE: XLE) is up 40% this year, while the State Street Technology Sector Fund (NYSE: XLK) has gained 28%.
The primary driver for the energy sector's gains is the escalation of the US-Iran conflict. The report notes that Ansar Allah, commonly known as the Houthis, has taken control of a large portion of Yemen, and Iraqi resistance forces launched missiles toward the East-West pipeline, leading to its closure. Additionally, President Donald Trump has suggested that the US-Iran war may extend past the midterm elections, potentially maintaining a blockade and reducing supply from Saudi Arabia.
These geopolitical events have pushed average gasoline prices to $4.31 and diesel to a record high of over $6. This price pressure has resulted in strong earnings for major oil and gas companies. ExxonMobil (NYSE: XOM) reported $14.5 billion in earnings, more than double its previous year's figures. Chevron (NYSE: CVX) reported $12.1 billion, while Shell and Marathon Petroleum reported $9.8 billion and $5.1 billion, respectively.
Conversely, the technology sector's performance varies by sub-sector. Communication equipment has risen by 44% this year, and semiconductor and equipment have risen by 36%. However, software and IT services are the top laggards, dropping by 0.94% and 21%, respectively. Notable technology companies mentioned in the report include SanDisk, Marvell Technology, Dell, Micron, Seagate, and Intel.
