The first quarter of 2026 marked a sharp shift from the broad-based strength that closed out last year. The S&P 500 finished in negative territory as investors wrestled with a new war in the Middle East, stubborn inflation, shifting interest rate expectations, and uneven earnings across major industries.
But the headline decline doesn’t tell the real story.
What stood out in Q1 was the extraordinary divergence beneath the surface. A handful of sectors delivered strong gains, while the broader market struggled. The gap between winners and losers was one of the widest we’ve seen in years — and it reinforced a key theme for investors: sector selection mattered far more than overall market direction.
Energy was the clear standout, surging nearly 38% for the quarter. Tight global supply, strong refining margins, and persistent geopolitical risk kept crude prices elevated and cash flows strong across the sector. This wasn’t a speculative rally — it was driven by fundamentals.
Across the energy complex, every major subsector participated in the rally. Midstream, exploration and production (E&P), integrated majors, and refiners all posted strong gains. But the drivers weren’t uniform. Some benefited from rising volumes and tariff growth, others from direct exposure to higher commodity prices, and a few simply saw long-overdue re-ratings as investors began to recognize just how much cash these businesses are generating.
As always, the returns discussed below reflect total returns, including dividends.
Upstream
According to data provider FactSet, pure oil and gas producers posted an extraordinary average gain of 45.0% in Q1.
Of the 40 upstream companies in the S&P 500, 38 finished in positive territory, and three posted triple-digit returns. The combination of higher commodity prices, disciplined capital spending, and aggressive shareholder return policies created a powerful setup.
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Kosmos Energy led the group with a staggering 206% gain, while ConocoPhillips, the largest upstream player, returned 42.1% — in line with the sector average. In short, the rising tide of oil prices lifted nearly all boats during the quarter.
Midstream
Midstream companies — pipelines, processors, and infrastructure operators — also delivered broad-based gains. Most names posted double-digit returns, with only a handful lagging in the single digits. This is exactly the kind of environment where midstream tends to shine: volumes are steady, pricing is supportive, and balance sheets are far stronger than they were a decade ago.
