This Sector Is Unexpectedly Crushing the Rest of the Market This Year

Late last year, energy was looking like the sector to avoid in 2026. That's because a global oil glut was sending oil prices lower, and oil stocks with them. In December, there were 1.4 billion barrels of "oil on the water" -- i.e., oil being shipped to a port or stored and waiting for a buyer. That was 24% more than the average for December from 2016 to 2024.

As a result, West Texas Intermediate, the type of oil extracted from oilfields in the U.S., was trading in late December at about $57 a barrel, $15 below where it started the year. Brent, the benchmark for oil from Europe, Africa, and the Middle East, was priced at about $60 a barrel, also $15 below where it was at the beginning of 2025.In response to sagging oil prices, investors were dumping energy stocks and looking for 2026 winners elsewhere.

Image source: Getty Images.

Well, surprise, surprise. As of the second week of February 2026, the energy sector is leading the pack. And few saw it coming. The State Street Energy Select Sector SPDR ETF (NYSEMKT: XLE) is up 23% year to date, beating every other S&P sector and crushing the broad S&P 500, which is up less than 2% year to date.

Several of the U.S. oil majors (the world's largest and most influential publicly traded oil companies) are soaring. Here are a few of the leaders:

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U.S. foreign policy is driving energy stocks higher

What is driving these stocks (and almost all of the other stocks in the S&P 500 energy sector) to outperform the broader market so dramatically? Well, it's not exactly clear. But there are theories.

One is that aggressive U.S. foreign policy is behind it. Since the U.S. military captured and detained Venezuelan President Nicholas Maduro on Jan. 3, many investors have begun to think that oil majors like Chevron and Exxon will now have access to Venezuela's oil reserves, which, at 19.4 billion barrels, are considered to be the world's largest. Indeed, Venezuela sits on a fifth of the world's proven oil reserves.

The biggest oil companies could be given special access to Venezuelan oilfields by the Trump administration. Just as importantly, both companies have large, complex oil refineries on the U.S. Gulf Coast that can handle the heavy sour blend of oil that Venezuela produces. And Chevron already has operations in Venezuela.

In addition, the White House has increased hostilities with Iran in recent weeks. It has already positioned one aircraft carrier group near that nation's coast and may be preparing to send another. Any kind of U.S. strike on or war with Iran would undoubtedly send global oil prices higher, at least temporarily, as Iran is a major energy producer and sits at an energy choke point, the Strait of Hormuz.

Other theories hold that as investors tire of putting money into artificial intelligence (AI)-related stocks, some fell back on energy stocks as a reliable long-term bet. But can the rally in energy stocks last?

Personally, I would be careful investing too much here. It will take many years and much capital to get Venezuela's oil sector back to fully or even mostly operational. And any U.S. conflict with Iran, if it happens, would likely be very brief. Instead, a wait-and-see approach to energy stocks makes more sense.

Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.