Which Stocks Do Well During Oil Shocks? | The Economist

Why It Matters

Traditional safety‑seeking strategies can underperform during oil‑driven crises, forcing portfolio managers to reassess factor exposures and risk controls.

Key Takeaways

• Oil shock boosts low‑quality, energy‑heavy stocks over high‑quality.
• High‑quality S&P 500 subindex underperforms broader market during crisis.
• Investors value near‑term earnings, favoring volatile sectors in uncertainty.
• Low‑multiple “junk” stocks can deliver positive returns amid turmoil.
• Reversal possible if oil supply stabilizes, shifting performance back.

Summary

The video examines how the Iran‑related oil price spike reshapes stock factor performance, questioning the usual flight‑to‑quality playbook.

Data reveal that subindexes of the highest‑quality firms in both the S&P 500 and MSCI World lagged their broader benchmarks, while low‑quality, especially energy‑heavy, stocks outperformed as oil‑driven earnings surged.

Host Josh explains that high‑quality companies depend on long‑term growth expectations, making them speculative during crises, whereas “junk” stocks trade at lower multiples and benefit from near‑term earnings certainty; energy firms represent roughly 9% of the lowest‑quality quintile versus just 1% of the top tier.

The implication is that investors may need to rethink factor allocations during oil shocks, favoring low‑quality, low‑multiple stocks, but must remain vigilant for a reversal if geopolitical tensions ease and oil supplies normalize.

Original Description

Is now the best time to buy “trash” stocks? The Economist’s capital markets correspondent, Joshua Roberts, joins Rosie Blau, co-host of The Intelligence podcast, to explain why low-quality stocks over-perform during moments of market turmoil, how rising oil prices linked to the Iran war are shaking global markets, and why uncertainty can sometimes make riskier investments surprisingly appealing.

00:36 – What do investors actually mean by rubbish stocks?

01:41 – How do rising oil prices affect stocks, bonds and the wider economy?

02:26 – Why are low-quality or rubbish stocks outperforming right now?

04:09 – Why are high-quality growth stocks more vulnerable during uncertainty?

05:21 – Can rubbish stocks really deliver better returns than good ones?

Listen to the full episode: https://econ.st/4dgEtzh

Time to buy the most rubbish stocks you can find: https://econ.st/412nGZu

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