Argus

•

Mar 18, 2026

Sector(s)

Basic Materials, Technology, Healthcare

Summary

Investors Huddle in Energy and Commodities Amid Uncertainty The U.S. is now three weeks into the war with Iran, and the stock market remains unsettled. The usual centerpieces of war - the massing of troops on both sides and conflicts between armies - are almost completely absent in this war. Massed troops would be at risk from unmanned aerial vehicles (UAVs), which are the primary combatants in this war. Most though not all UAVs have been stopped by air defenses, and most successful strikes have damaged buildings rather than people. If nothing else, the Iran conflict may be a precursor of future wars in which troops are largely absent, and the war is mainly fought between armed drones. The main event in the Iran conflict has been the near closure of the Strait of Hormuz. About 20% of the world's oil traverses the horseshoe-shaped strait, which is bordered on the north by Iran. Normally, 80 to 100 vessels pass through the strait every day. Recently, traffic has slowed to fewer than 10 ships per day, many of them Chinese flagged. The U.S. has acknowledged it is not yet ready to militarily safeguard shipping through the strait and is asking for multiple allied nations to send warships to the region.  In the latest news as of March 16, 2026, U.S. Treasury Secretary Scott Bessent stated that the U.S. was allowing Iranian tankers to pass through the strait in order to maintain global supply. We expect the news flow from Iran to remain fast and furious, potentially unsettling and reordering market sentiment multiple times a day. Sector Concentration With the Iranian conflict showing no signs of approaching resolution, U.S. stock investors are concentrating in just a handful of sectors perceived as well positioned amid uncertainty. Based on closing prices as of March 13, 2026, the Energy sector (XLE) is leading the market, with a 28.2% gain for the year to date. Every part of the Energy sector is up in double digits, ranging from 18% for exploration & production companies to 38% for oil and gas refining & marketing. Energy is sensitive to price trends: oil prices are up, so Energy stocks are up. But Energy was leading the market through the end of February, before the first shots were fired. Both Energy and Materials are seen as 'wealth in the ground' hedges against inflationary pressures. The inflation news, both before and since the start of the Iran war, has been worrisome. That includes a 3.4% annual increase in the January 2026 Core Producer Price Index, issued late in February, and a 3.1% increase in the Core Personal Consumption Expenditures Price Index within January Personal Income and Outlays, released in mid-March. The energy price shock has not been built into any inflation reports released to date. West Texas Intermediate and Brent Crude oil prices have risen more than 50% in the month between mid-February and mid-March. As of March 16, 2026, WTI was trading in the mid- to upper-$90s per barrel, down about 2% from peaks exceeding $100. The national average price for a gallon of gasoline in mid-March had risen about 24% since the start of the Iran war, according to AAA. Normally, gasoline prices reflect the level of crude prices with a four- to six-week lag. The jump in gasoline prices is not reflective of actual input costs but rather in anticipation of higher input costs.  Energy prices could still come down from current highs, as they did once investors determined that the Russian-Ukrainian conflict had not caused extensive damage to oil infrastructure in either country. If significant Saudi and Iranian oil infrastructure were to be damaged or destroyed, the trend in prices would be unlikely to reverse in the intermediate term.  The second-best sector year to date is Materials (XLB), which was up 12.6% as of mid-March. Materials is a diverse sector, and returns across the sector are highly dispersed. Commodity chemicals are up over 60%, whereas construction materials are down 14%. Fertilizers & agricultural chemicals, up about 30%, are soaring due to sensitivity to oil prices. Materials, which benefits from a weak U.S. dollar given that most commodities are priced in the U.S. currency, has even withstood the recent modest rebound in the dollar. Although bonds would normally be a safe-haven trade in the early stages of global disruption, U.S. Treasury yields have risen in anticipation of worsening inflation related to energy price shocks. Utilities (XLU) usually strengthen on falling yields and weaken on rising yields. Although yields are clearly up, Utilities are up 10% year to date. Utilities are serving as a defensive investment, given their steady-state business in uncertain times and predictable income. Another defensive area, Consumer Staples (XLP), has given back some of its gain since the end of February but remains up 9% year to date. Agricultural products and food retail are leading Consumer Staples. The rest of the U.S. stock market is struggling, including some sectors that were leading at the two-month mark. Industrial (XLI), up in high-single-digit percentages at the end of February, has retraced nearly all of its earlier gain. While aerospace & defense remains solidly positive year to date, Airlines are negative, as are multiple service-related niches.  One of the top three sectors in 2025, Financial (XLF) is now down in low-double digits. Every subcategory in the Financial sector is negative for 2026 to date. Consumer Discretionary (XLY), which did not have a great 2025, is down 7% in 2026. As the affordability crisis strains more budgets, the Consumer Discretionary sector is seeing double-digit declines in automobile manufacturers, casinos & gaming, footwear, and hotels, resorts, & cruise lines. Healthcare (XLV), positive as of the end of February after several challenging years, is now down 4% year to date, pulled lower by medical equipment and healthcare supplies.  The two best sectors in 2025 were Information Technology and Communication Services. In 2026 to date, Information Technology (XLK) is down 6%. Unlike in 2025, IT in 2026 is a feast-or-famine sector. Application software is down 23% year to date amid the 'SaaSpocalypse' caused by fear of AI displacement. Semiconductor capital equipment is up 24%. Semiconductors, which were up in double digits in mid-February, are now close to breakeven for the year. IT consulting, a persistent area of weakness in recent years as pandemic-era spending rolled off, is weak again in 2026 on fears of AI displacement. Communication Services (XLC) is down about 3% year to date in 2026. Amid pressure on the AI giants such as Meta Platforms Inc. and Alphabet Inc. and in broadcasting and advertising, the old core of this sector -- telecom services, wireless telecom, and even cable television -- are positive for the year to date.  The rotation away from growth leadership and toward defensive, cyclical, and inflation hedges began at mid-year 2025 and has strengthened across the subsequent nine months. While cyclical sectors such as Industrial have lost some of their luster, the sheltering in inflation hedges (Energy, Materials) and in defensive sectors (Utilities, Consumer Staples) has only intensified

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