According to the Zhitong Finance APP, Wall Street institutions, including Jefferies and Citigroup, believe that investors hiding in energy stocks amid the Middle East war should not relax too much, as soaring energy stocks may be nearing their peak.
Before the Middle East war triggered a surge in oil prices, the energy sector was already the best-performing among the 11 sub-sectors of the S&amp;P 500 index. With the rise in oil prices, the energy sector further expanded its leading performance in the market. Data shows that year-to-date, U.S. oil and gas stocks have risen 29%, far outpacing the broader market, even after a general increase on Monday driven by optimism over the potential reopening of the critical oil passage in the Strait of Hormuz.
In the approximately two weeks since the outbreak of the Middle East conflict, despite the White House's attempts to alleviate concerns by promising that the surge in oil prices would not last, traders have continued to funnel money into energy stocks. Ben Cook, portfolio manager at Hennessy Advisors, stated, “Have these stocks already reflected oil prices above current forecasts? It’s very likely.” He pointed out that Wall Street has been trying to balance the risks of oil prices remaining high in the long term with the Trump administration's rhetoric aimed at suppressing oil prices and the more critical supply-demand fundamentals.
Jefferies analysts noted that significant inflows from both active and passive funds into the energy sector have caused the rolling total over the past 12 weeks to grow to 7% of assets under management, “exceeding all periods in the past 15 years except for the most extreme cases.”
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Andrew Greenbaum, Senior Vice President of Jefferies Equity Research Product Management, stated in a report, “This is already close to the top region.” Greenbaum pointed out that, at the index level, the weight of energy stocks in the S&amp;P 500 index has surged by more than one-third in just 55 trading days, increasing from about 2.7% of the index to 3.7%. These fluctuations indicate that “most of the position adjustments may have already been completed.”
He is not the only one expressing doubts about whether the significant gains in the energy sector this year can be sustained. Citigroup's global sector selection model downgraded the U.S. energy sector to a short position on Monday, predicting that the sector will decline over the next month, while technology, industrial, and financial sectors may perform better. Additionally, analysts at investment bank Raymond James noted in a client report on Monday that, considering the gains in energy stocks since the beginning of the year, investors have begun to ask, “Has the market partially priced in the impact of the Middle East war?”

Wall Street firms Jefferies and Citigroup have warned that investors should not be overly optimistic in the context of the Middle East war, as the rally in energy stocks may be nearing its peak. Although U.S. oil and gas stocks have risen 29% this year, analysts point out that fund inflows have reached historical highs, and the weight of energy stocks in the S&P 500 has significantly increased, indicating that most position adjustments have been completed. Citigroup has downgraded the U.S. energy sector to a short position, predicting a decline in performance over the next month

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Funds are flooding into U.S. energy stocks! Jefferies and Citigroup jointly warn: the rally may be coming to an end