Does the Market Care About Higher Oil Prices? – Reflections on What 2026 Has Taught Investors So Far

Like many of my peers and colleagues in the investment management world, I’ve spent much of the past several weeks deep in the Teams and Zoom and in-person conference room conversations that come with client meeting season.

We see the bulk of client meetings in the weeks after quarter-end, so in the springtime that generally means mid-April through Memorial Day. These conversations are my favorite part of the job, and I always find it interesting to see which top themes and recurring questions bubble to the surface each quarter. So far in this wave of client meetings, there’s been a clear winner: the sharp contrast between March’s market selloff and April’s market rebound:

While the market’s sluggish March could be attributed to the war in Iran and subsequent concerns about higher energy prices, the reason for its rebound in April is perhaps not as obvious. Though the conflict’s major operations appear largely over, oil prices remain near $100 per barrel after briefly touching levels closer to $120 in March. I don’t blame many investment committees for returning to the same question:

With oil prices still this high and energy supply disruptions persisting, why has the economy not slowed down in a meaningful way, and why is the stock market surging higher?

The answer can be found in a closer look at the economic factors at play here.

U.S. Economic Resilience to Higher Oil Prices

I think an important consideration here is that many investors associate energy price shocks with market and economic disruption, especially those in the U.S. who either lived through or have read about the oil shocks of the 1970s. Personally, the 1970s were before my time. But there was someone I trust who lived through it and whose thoughts I wanted to share… and that’s my mom, Caroline Martin. Here’s what she had to say about the economy in the 70s:

“I bought a Buick Skylark (white with camel interior) in the early 70s. My interest rate was 10% on the car in those days. Everything else was about 4-5%. Houses were about 8-10% rates on mortgages. Gas prices were about $2 or $3… super pricey. We only had one income (the man worked, and the woman stayed home and raised the kids).

Your dad and I moved to Texas in 1976, and we couldn’t even afford a car then. The only way we could afford a mortgage was by forgoing a car. The house was $35K, and we had to put 5% down, so we had to sell the car to come up with the money. My parents probably thought I was rolling in the dough, though. My mom talked about the Great Depression where everyone had ‘Victory Gardens’ to grow their own food. It sounded like a rougher time than I had. You guys haven’t had it that bad! Even to this day, when I leave the room, I turn off the lights to save the electricity.”

You may want to fact-check her memory on specific costs, but I know how hard my mom hustled growing up. When I was in school, she went to college and recession-proofed her career so we could have it better than what she described above. I’m very grateful for that. But my takeaway here is that life had its struggles back then, just like generations before that experienced through the Great Depression, and just like many folks are experiencing today.

Beyond that, though, the comparison between the 1970s and today doesn’t really hold up. The U.S. economy today looks fundamentally different. We use far less energy per dollar of GDP than we did back then, we get more output from each barrel of oil, and much more of the economy is driven by services and technology rather than heavy, energy‑intensive manufacturing.

On top of that, the U.S. is now a net energy exporter, so higher prices don’t just act as a tax that drains money overseas. They also support domestic production, jobs and investment. That doesn’t mean higher energy prices don’t matter, but it does mean their impact is very different than it was fifty years ago. Of course, none of us like to see $5 a gallon at the gas pumps, but even the data on consumer/household impacts is better than it was back in the day:

• Total household energy spending today is just under 6% of disposable income, versus 8% when it peaked in the early 80s
• Gasoline absorbed roughly 4–5% of household income in the late 1970s and early 1980s, compared with about 2–3% in the 2020s
• Average fuel efficiency has improved from roughly 13–17 mpg in the mid‑1970s to about 25–28 mpg today
• Household debt service ran near 15% of disposable income in the early 1980s and is closer to 11% today

That said, I don’t want these headline averages to hide the real stress at the household level. Lower‑income consumers especially are far less insulated from inflation by higher asset prices and surging stock markets. Even as the broader economy is better positioned to absorb higher prices, persistent inflation still exacerbates inequality and creates meaningful hardship where budgets are already tight, and that is a trend to monitor that hasn’t quite showed up yet in market results.

Market Impacts from Higher Oil Prices

Shifting the focus to investment markets specifically, I’m thinking of two phrases we hear a lot:

• The stock market is not the economy (as my Wespath colleague Jon Morris might remind us!)
• The market can remain irrational longer than you can remain solvent

These remind us that a) We should not expect the above-mentioned economic trends to be perfectly aligned with market trends and b) We should not expect the market trends to “make sense” to us all the time.

However, when it comes to oil shocks, market history suggests a slightly different dynamic: equity markets actually tend to absorb the shock relatively quickly and refocus on fundamentals. Looking across the past seven major oil shocks, the S&P 500 has historically rallied an average of roughly 1% two months after the shock, more than 10% after one year, and over 30% after two years:

^{(Source: Capital Group, Bloomberg, S&P)}

We’ve already noted the April 2026 rebound as evidence this might be happening again. The S&P 500 bottomed on March 30, well ahead of early April ceasefires, and has since rallied sharply.

A Reminder on Diversification

Beyond stocks, I would also note that periods of elevated inflation are exactly when diversification and inflation-sensitive assets are expected to do their job.

We saw some proof of this during the March and April period we’re talking about: the Inflation Protection Fund – I Series’ (IPF-I) correlation to the U.S. Equity Fund – I Series (USEF-I) from February 28 through April 30 was just 0.18 (perfectly correlated is 1.00), so these funds were behaving like the textbook case of diversification during uncertain periods.[i]

IPF-I holds a combination of inflation-linked securities (TIPS), commodities futures, infrastructure and floating rate securities, each chosen precisely because they tend to respond differently than equities in inflationary environments. TIPS’ principal values are indexed to the CPI, meaning when inflation rises, the principal adjusts upward, while commodities like oil tend to rise in tandem with inflation itself. Infrastructure assets, meanwhile, often carry contractual agreements that allow price adjustments tied to inflation, providing stable, long-term cash flows even as other markets are disrupted. The Iran War-driven oil spike that rattled equity markets in March is exactly the kind of shock where this diversification is designed to show up.

To be clear: Inflation matters. Energy prices matter. But the investors best positioned in 2026 aren’t the ones who saw the Iran War coming. They’re the ones who already held a diversified portfolio, built to preserve purchasing power, and had the discipline to leave it alone or to consider changes in the context of long-term objectives.

^{[i] Historical results are not indicative of future performance. All investments carry some degree of risk that will affect the value of the fund’s holdings, its investment performance and the price of its units. As a result, loss of money is a risk of investing in the fund. IPF-I is subject to the following principal investment risks: market risk, investment style risk, security-specific risk, credit risk, country risk, currency risk, derivatives risk, interest rate risk, deflation risk, liquidity risk and prepayment risk. USEF-I is subject to the following principal investment risks: market risk, investment style risk, security-specific risk, credit risk, country risk, currency risk, derivatives risk, interest rate risk, deflation risk, liquidity risk and prepayment risk.}

^{This is not an offer to purchase securities or an investment recommendation. Please see the Investment Funds Description – I Series and Investment Funds Description – P Series for information about the Wespath funds.}