Energy

The Energy sector is waking up. The sector is experiencing robust performance amid rising global demand, policy shifts toward “energy dominance” emphasizing fossil fuels, nuclear, and geothermal, and challenges from grid constraints, permitting delays, and infrastructure needs. Renewables continue to dominate new capacity additions, accounting for over 90% in 2025, but policy shifts will likely moderate that trend back to fossil fuels. Energy has been the top performer in the S&P 500 year-to-date, gaining over 14% in January 2026 alone, driven by cyclical strength and commodity-sensitive leadership (look at chart below vs S&P500 over the last 12 months). It only represents 3.4% of the S&P500 vs. 33% of the information Tech or 12.6% for financials, but it’s gaining momentum. Why? Valuations in the Energy sector remain attractive relative to the broader market, reflecting commodity price volatility and a focus on capital discipline. It’s P/E of 16.62 as of January 1, 2026, is lower than sectors like Information Technology (39.91). And in terms of EV/EBITDA it shows a 50% discount to the broader market with a multiple of 8.56. Finally, the Energy sector is generating strong FCF, prioritizing shareholder returns over aggressive growth amid price volatility. Between 2022 and mid-2025, nearly 45% of U.S. oil and gas companies’ cash flows were allocated to dividends and buybacks, underscoring FCF focus.  In 2026, large-cap firms are expected to return 78% of FCF to shareholders, while small-to-mid-caps target 46%. This is a huge contrast to hyperscalers that are burning their entire FCF on data centers, with less focus on the shareholder, after being the most aggressive on buybacks. Will the Energy sector alongside other commodities the new leader of this market?

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