Mike Larson | Editor-in-Chief
The Middle East war is rapidly reshuffling the sector performance deck. So, if you’re sitting at the market table, what should you do?
Let’s start with the MoneyShow Chart of the Day – a table showing the one-month performance of all the major S&P 500 sector ETFs. It’s not hard to pick out the big winners – the State Street Utilities Select Sector SPDR ETF (XLU) and State Street Energy Select Sector SPDR ETF (XLE) – or the biggest loser – the State Street Financial Select Sector SPDR ETF (XLF).
Utilities, Energy Thrive – While Financials Slide – as Stock Market Deck Gets Reshuffled
Source: State Street Global Advisors
Energy’s fundamental driver is clear as day. Global energy supplies are tightening already thanks to the US-Israel-Iran conflict – and they’ll tighten further if the Strait of Hormuz remains effectively blockaded for weeks. That’s allowing oil and gas producers to sell at higher prices...with the biggest benefits accruing to companies not hamstrung by Gulf supply shortages.
Meanwhile, utilities offer safety in times of economic stress due to their higher dividend payouts and the inelasticity of demand for their products. Plus, they’re levered to the AI boom – which is still a background profit driver even as some investors are raising questions about AI spending.
As for financials? They’re getting hit by private credit default worries PLUS fears that higher energy prices could kneecap the economy. They could also put more pressure on consumer budgets – and drive loan delinquencies higher.
It’s worth noting that rotational action isn’t SOLELY tied to the war. During my MoneyShow Virtual Expo chat with David Keller yesterday, the Sierra Alpha Research president and chief strategist noted that money has been rotating out of growth and into value stocks for several months now. Financials were also weakening before the missiles started flying.
So, it might behoove you to “play along” as a trader. Even if the conflict were to end tomorrow, the underlying rotational action would likely reassert itself.
Could small- and mid-cap equities be your next big winners? Erin Gibbs thinks so. The chief equity strategist at SlateStone Wealth notes in this presentation from our recent MoneyShow Virtual Expo that they’ve entered 2026 with improving earnings leadership and discounted valuations. Plus, they’re seeing stabilizing business sentiment after several years of lagging performance.
Markets entered last week under a cloud of geopolitical uncertainty as open conflict between Iran and Western allies injected a sudden fog of war into global markets. The initial reaction was swift. Despite the widespread pullback, markets largely held their intermediate defensive lines, writes Buff Dormeier, chief technical analyst at Kingsview Partners.
Oftentimes, when the financial markets are hit by bad news, policymakers scramble to calm them. That happened Monday in response to Sunday’s soaring oil prices, observes Ed Yardeni, editor of Yardeni QuickTakes.
🚀📈 Defense Stocks are on the Move! Read about our 2026 “Top Picks” in the sector.
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