Weekly market commentary

We have long argued that we are in a world shaped by supply, where access to energy, infrastructure and other critical resources increasingly determine economic and market outcomes. Companies positioned to benefit from rising electricity demand have outperformed, from gas-turbine manufacturers and copper producers to clean-energy firms helping expand power systems for AI and electrification. (See chart) More recently, concerns over the Strait of Hormuz shifted attention to fuel security, boosting the relative appeal of energy suppliers less dependent on vulnerable transport routes (See non-SoH LNG exporter line). Together, these moves suggest an increased recognition of both sides of the energy challenge: securing fuel supply today while building enough power capacity for tomorrow.

Oil prices retreated to March lows, but the broader challenge of energy security and resilience remains. How should governments, companies and investors best respond? We see the answer unfolding across two horizons. The first is the immediate need to secure supply, improve flexibility and reduce dependence on vulnerable routes and infrastructure. That is creating opportunities for fuel and commodity exporters outside the Strait of Hormuz, as well as for fuel transport, storage and distribution infrastructure that can help diversify supply and reduce exposure to key chokepoints. Providers that can deliver reliable fuel and power outside existing bottlenecks stand to benefit.

The second is longer term, where the challenge is not simply to produce more energy, but to meet rising demand while balancing energy security, affordability, resilience and decarbonization objectives. While AI and data centers are contributing to rising electricity demand, they are just one driver alongside electrification, rising cooling needs and economic growth. But countries are responding in different ways based on their resources, infrastructure and policy priorities. For fuel-importing economies, repeated shocks are strengthening the incentives to invest in electrification, grids, storage and domestic power systems. For energy exporters, the opportunity often lies in expanding and upgrading the infrastructure needed to continue delivering supply while also meeting rising energy and power demand at home.

Energy has been one of the strongest-performing sectors this year, supported by earnings upgrades and concerns over supply security. Yet we do not think the opportunity is best expressed through a broad sector allocation. While recent disruptions have highlighted the value of energy suppliers outside major bottlenecks, we see more durable opportunities in the infrastructure that supports energy security and rising power demand. That reinforces our preference for a selective and active approach focused on bottlenecks and secure supply rather than energy producers more broadly. Regionally, we favor developed-market supply chains and infrastructure assets positioned to benefit from investment in energy security, while remaining more selective in emerging markets, where opportunities are increasingly differentiated by policy frameworks and exposure to global energy supply chains.

The combined pressures of vulnerable energy supply and rising power demand are making energy security a durable investment theme, favoring infrastructure and critical bottlenecks, in our view.

The S&P 500 gained 1% and Treasury yields rose last week following Kevin Warsh's first meeting as Federal Reserve chair. Warsh’s first meeting seemed to be more about creating optionality. No matter what the FOMC views are at this stage, the five task forces he created have the potential to reset the basis of all these forecasts. This could result in more interest rate volatility going forward – not necessarily a bad thing if it reflects the macro rather than Fed’s reaction function uncertainty.

This week, U.S. core PCE inflation will be in focus as markets assess whether higher energy costs are feeding into underlying price pressures. In Japan, service PPI and CPI data will provide an update on inflation trends, while flash PMIs across major economies and U.S. consumer sentiment will offer a read on economic momentum.