The Australian stock market presented a mixed picture to end the trading week, with the benchmark S&P/ASX 200 Index (ASX: XJO) facing downward pressure while the S&P/ASX 200 Energy Index (INDEXASX: XEJ) surged to new heights.
As the ASX 200 dipped 0.21% into the weekend at 8,547.40, the XEJ closed at 8,625.20, marking a significant daily increase of 4.70% and 7.23% on the week. This performance positioned the energy sector as a clear leader, as other sectors lagged.
The primary catalyst for the energy sector’s outperformance is the escalating conflict in the Middle East, particularly the heightened tensions between Iran and Israel. These developments have stoked fears of disruptions to global oil supply, sending crude oil prices higher. As a result, companies within the XEJ, including heavyweights like Woodside Energy Group (ASX: WDS) and Santos Ltd (ASX: STO), have experienced a corresponding boost in their share prices. The correlation between geopolitical events and energy stock movements has become increasingly pronounced, with investors closely monitoring developments in the region.
A review of the XEJ’s recent performance reveals a sustained upward trend, with gains continuing since trade tensions deescalated in early April. The index has gained more than 30% off the lows incurred just a little over 2 months ago. While the index remains in an upward trend, a longer look reveals that it continues to trade 13% below the same point last year.
The broader ASX 200’s decline underscores the current risk-off sentiment prevailing in the market in light of the uncertainty. A look across the other sectors, and we had Financials trading down 0.4%, Materials -024%, and Industrials -0.43%. Investors are seemingly rotating out of other sectors and into energy, seeking a safe haven amidst geopolitical uncertainty. This trend highlights the energy sector’s potential as a defensive play during periods of market volatility.
Top Australian Brokers
- Pepperstone - Trading education - Read our review
- IC Markets - Experienced and highly regulated - Read our review
- eToro - Social and copy trading platform - Read our review
However, analysts caution that the energy sector’s gains are largely predicated on continued instability in the Middle East and sustained high oil prices. De-escalation of tensions or an unexpected increase in oil supply could quickly reverse the sector’s fortunes. Furthermore, the long-term outlook for fossil fuels remains uncertain due to the global push towards renewable energy sources. This transition poses a significant challenge to traditional energy companies, requiring them to adapt and diversify their operations to remain competitive.
Markets will be closely watching tensions, and for clues as to what comes next as the European and U.S day progresses.
Don’t Buy Just Yet
You will want to see this before you make any decisions.
Before you decide which shares to add to your portfolio you might want to take a look at this special report we recently published.
Our experts picked out The 5 best ASX shares to buy in 2025.
We’re giving away this valuable research for FREE.
Click below to secure your copy
