Energy stocks rip higher, and Wall Street still sees a bargain

Energy stocks have become July’s hot trade, powered by a sharp climb in oil prices as fighting between the U.S. and Iran keeps traders on edge.

The S&P 500 energy sector rose 10.5% in July through Tuesday, according to FactSet data cited by MarketWatch. That puts the group on pace for its strongest month since January and makes it the best-performing sector in the index so far this month.

The rally has added to a banner year. FactSet data show the S&P 500 energy sector is up 30.4% in 2026.

DataTrek Research co-founder Nicholas Colas said in a Tuesday note shared with MarketWatch that energy remains the least expensive group in the S&P 500 by a wide gap, even after the run-up. Colas said he likes the sector for reasons beyond using it as protection against near-term Middle East tensions.

Cheap on earnings, rich in payouts

DataTrek’s note showed the energy sector trading at 13.4 times expected earnings over the next 12 months. That compares with a forward price-to-earnings multiple of 20.3 for the broader S&P 500.

Colas said the discount is spread across most of the sector’s biggest names, rather than being driven by only a few unusually cheap stocks.

He attributed part of the lower valuation to the industry’s exposure to commodity prices, which can move quickly and hit profits. But he also pointed to dividends as evidence that major energy companies are showing restraint with capital and returning cash to shareholders.

Colas also said the sector does not carry the same uncertainty around artificial-intelligence-related capital spending that investors are weighing in other corners of the market.

Oil giants head into earnings week

ExxonMobil and Chevron are scheduled to report second-quarter results on July 31. FactSet data cited by MarketWatch show ExxonMobil shares climbed 11% in July through Tuesday, while Chevron rose 15.3% over the same period.

Analysts polled by FactSet expect ExxonMobil’s earnings per share to rise 118% from a year earlier. Chevron’s earnings per share are expected to climb 208%, based on the average estimate.

Refiners are also in focus. Valero Energy is due to report second-quarter results next week, while Marathon Petroleum and Phillips 66 are set to release quarterly earnings in early August. MarketWatch reported that shares of all three were trading at record highs at last check.

Crude keeps climbing

U.S. crude prices moved higher Tuesday. West Texas Intermediate crude for August delivery rose 2% to $84.91 a barrel, according to Dow Jones Market Data. WTI has advanced more than 22% in July, the data show.

The Associated Press reported Tuesday that the U.S. and Iran had exchanged attacks for a 10th straight day across the Middle East. Robert Yawger, a commodity specialist at Mizuho Securities USA, said in an emailed note Tuesday that the battle continued to remove barrels from the market.

The Energy Select Sector SPDR ETF, a widely followed fund tied to S&P 500 energy stocks, has risen this year but remains below its 52-week high of $63.46 from March 30, according to FactSet.

The broader U.S. market also finished higher Tuesday, with the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all gaining. FactSet data show energy rose 1.2% for the day, making it the S&P 500’s second-best sector behind information technology, which gained 2.3%.

Rachel Aguirre, Vanguard’s head of product and portfolio strategy, told MarketWatch that investors should stay diversified so portfolios can hold up during volatility in a market being pulled by both fear and greed.

This story draws on original reporting from MarketWatch.