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Stocks were up and down in another volatile session on Tuesday, as concern about the impact of the war in the Middle East continues to weigh on markets. “Risk on” sectors such as communication services and technology were down and energy was up again, as investors, traders and speculators assess how long traffic through the Strait of Hormuz will be jammed.
“A negative supply shock has hit the global PMIs in March,” Renaissance Macro Research Head of Economics Neil Dutta writes of today’s release of the S&P Global Flash Manufacturing Purchasing Managers Index and the Flash Services PMI. “Across the flash composite PMIs – Euro Area, Japan, India, Australia – released there was a clear theme, slowing activity and rising inflation.”
As Dutta sees it, “The risk is that we’re still relatively early in the shock and that a quick resolution should not be the base-case. The longer the Strait of Hormuz is closed, the larger the cumulative shortfall of energy becomes.”
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The economist places little faith in recent headlines: “While there are some rumblings of negotiations between the parties involved, energy is not flowing through the Strait. Ultimately, market participants will need to think less about the day-to-day ‘he-said, she-said’ over a truce and think more about what that oil is ultimately used for.”
The front-month West Texas Intermediate crude oil futures contract was up 4.0% to $91.66 per barrel from $88.13 on Monday. Brent crude, the benchmark for Europe, was up 3.6% to $103.52 from $99.94.
We’ll see how regular folks are feeling about the impact of rising crude oil prices with the highlight of this week’s economic calendar: the release of revised University of Michigan Consumer Sentiment Survey data on Friday at 8:30 am Eastern Daylight Time.
One primary and problematic price to rule them all
That the S&P 500 has been moving with crude oil since the war in the Middle East began probably comes as little surprise. That the index and the commodity have “had a near-100% intraday correlation since the conflict began,” according to Piper Sandler, only drives home the point.
Piper Sandler notes similar “one-variable” markets for comparison: inflation in 2022, the 10-year U.S. Treasury yield in 2023 and tariffs in 2025.
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“Stocks rarely find a bottom before the ‘primary problem’ eases,” the firm’s analysts say, noting that the one variable itself is greater than incoming economic and earnings as well as technical, historical and sentiment factors combined.
By the closing bell, the blue-chip Dow Jones Industrial Average had declined 0.2% to 46,124, the broad-based S&P 500 was down 0.4% at 6,556, and the tech-heavy Nasdaq Composite had fallen 0.8% to 21,761.
Upstream, downstream and midstream
Energy stocks continue to benefit from rising commodity prices, a trend that actually predates the present war in the Middle East. Chevron (CVX, +0.8%), for example, was already up 23.8% year to date on a total return basis through February 27 vs 0.7% for the S&P 500.
CVX was up 0.1% last Friday, when WTI was up 2.3%. CVX was up 1.7% on Monday, even though WTI was down 10.4% And CEO Mike Wirth said at S&P Global’s CERAWeek conference that we haven’t seen the peak for the current cycle.
“There are real physical manifestations from the closure of the Strait of Hormuz that are working their way around the world and through the system that I don’t think are fully priced into the futures curve on oil,” Wirth said.
Downstream energy companies such as Marathon Petroleum (MPC, +4.9%), Phillips 66 (PSX, +4.2%) and Valero Energy (VLO, +1.8%), which refine crude oil into everyday products including transportation fuels, heating oils and raw materials for manufacturing as well as many more items we often overlook, show similar patterns of sustained outperformance.
Midstream energy companies such as Targa Resources (TRGP, +2.6%), Energy Transfer LP (ET, +0.7%) and Williams Companies (WMB, +1.2%) have outperformed the broader market but have trailed their upstream and downstream peers so far this year.
Truist analyst Gabe Daoud Jr. initiated coverage of 34 energy stocks on Tuesday, including 11 midstream operators, noting that 2026 “will represent one of those (rare) years that the sector should enjoy outsized returns given the current geopolitical backdrop.”
Daoud likes midstream companies with natural gas infrastructure, strong project backlogs and visible demand growth, citing TRGP – a top-rated S&P 500 stock – for its “leading footprint” in the Permian Basin. Daoud rates TRGP Buy with a 12-month target price of $279, upside of 16% from its closing price on Monday.
People still have to eat
Smithfield Foods (SFD, +4.3%), a standout amid a relatively hot 2025 IPO market, enticed buyers again after management reported fiscal fourth-quarter earnings of 83 cents per share (+53.7% year over year) on revenue of $4.23 billion (+7.0% YoY), beating Wall Street’s forecast for EPS of 68 cents on revenue of $4.14 billion.
The consumer staples stock completed its initial public offering in January 2025, surged from the end of April through August, then sagged into year’s end. SFD held on for an 18.2% annual gain last year. And it’s up more than 5% in 2026.
Smithfield said sales of its core packaged-meat products grew by 4.3% to $2.56 billion. “Fiscal 2025 was a defining year,” CEO Shane Smith said. “We delivered on our strategies, drove record profit, expanded margins, generated strong free cash flow and set the foundation for multiyear growth.”
Smith attributed Smithfield’s results amid “significant market headwinds” to its diversified product portfolio and a vertically integrated business model. Management expects to grow sales and margins in fiscal 2026 and sees “a long runway ahead for future growth” led by its packaged-meats business.
