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Oil surges on threat of Middle East strike, but real military action has been bad for energy

  • Oil hit a multi-year high on the threat of a US military strike against Syria.
  • President Trump tweeted provocatively on Wednesday about missiles.
  • Market history shows that actual military strikes in the Middle East have been bad for energy stocks and oil.
The Eagle Ford crude oil tanker sails out of the the NuStar Energy dock at the Port of Corpus Christi in Corpus Christi, Texas, U.S., on Thursday, Jan. 7, 2016.
Eddie Seal | Bloomberg | Getty Images
The Eagle Ford crude oil tanker sails out of the the NuStar Energy dock at the Port of Corpus Christi in Corpus Christi, Texas, U.S., on Thursday, Jan. 7, 2016.

Crude oil surged near-2 percent on Wednesday, to a level it had not touched since December 2014, and the energy sector moved higher even as the stock market fell.

The moves came after President Donald Trump tweeted a threat about the U.S. military launching missiles strikes against Syria. All the S&P 500 sectors closed lower on Wednesday except for energy.

The Select Sector Energy SPDR (XLE) ended the day 1 percent higher. But if the U.S. actually follows through on Trump's threat, history shows the rally in oil and energy may not last.

Geopolitical tensions have historically lifted energy sector stocks and defense and aerospace stocks. But history also shows that actual military action has been followed by underperformance from the energy sector relative to other sectors of the U.S. stock market and the S&P 500.

Data from hedge fund analytical tool Kensho that examined patterns coinciding with U.S. military actions in the Middle East dating back to the 1990s show that in the day, week and month after a Mideast strike, oil has underperformed other assets, and the energy sector has been one of the worst in the S&P 500.

One day after

  • XLU: Utilities Select Sector SPDR
  • XLV: Healthcare Select Sector SPDR
  • XLY: Consumer Discretionary Select Sector SPDR
  • XLB: Materials Select Sector SPDR

One week after

  • XLV: Healthcare Select Sector SPDR
  • XLB: Materials Select Sector SPDR
  • XLY: Consumer Discretionary Select Sector SPDR
  • XLU: Utilities Select Sector SPDR

One month after

  • XLV: Healthcare Select Sector SPDR
  • XLF: Financial Select Sector SPDR
  • XLP: Consumer Staples Select Sector SPDR

The sector ETFs have been trading across 24 of the 32 attacks tracked by Kensho dating back to 1982. In addition to the underperformance from the energy sector after U.S. military strikes in the Mideast, big oil stocks like Exxon Mobil and Chevron, which have a longer history than the ETFs, as well as the price of crude oil, have also trailed the market.

Disclosure: NBCUniversal was a minority investor in Kensho prior to the firm being acquired by S&P.

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