Freedom Broker highlighted energy as a defensive sector amid inflation risks

Energy remains one of the most attractive areas in the U.S. market and can also serve as a hedge against a new inflation spike, according to Freedom Broker analysts. Over the week, the energy sector (XLE) rose by 2.20%, and its return since the start of 2026 reached 45.26%. The review does not specify target prices or upside potential for individual instruments.

Energy combines two investment ideas

Energy is currently attractive in two ways at once — as one of the year’s strongest fundamental trends and as a natural insurance policy against a new inflation spike, Freedom Broker analysts note.

The sector is supported by rising energy prices and a geopolitical premium linked to the resumption of military exchanges between the U.S. and Iran. Over the past week, WTI crude rose by 9.7%, while XLE added 2.20%.

For the period since the start of the year, energy has become the leader among the major sectors of the U.S. market: XLE is up 45.26%. By comparison, the technology sector (XLK) gained 30.40%, and the S&P 500 index — 13.54%.

Diesel increases inflationary pressure

The main risk is not only the price of crude oil, experts believe. The cost of diesel fuel in the U.S. has approached $5.85 per gallon and has increased by about 55% since the start of the conflict. The spread between diesel and crude prices has reached record levels.

According to Freedom Broker, this dynamic shows that inflationary pressure is being driven not only by the cost of raw materials, but also by higher processing and transportation costs.

At the same time, physical oil shipments have so far declined only slightly. On Tuesday, about 18 million barrels passed through the Strait of Hormuz versus roughly 20 million barrels before the start of hostilities. Thus, the price change turned out to be noticeably stronger than the decline in the actual volume of supplies.

CPI will determine the market reaction

Energy price dynamics increase the importance of the August U.S. Consumer Price Index. Freedom Broker forecasts headline CPI growth of 0.47% m/m versus the consensus of 0.4%. Analysts attribute the higher forecast almost entirely to the expected rise in fuel prices of about 3.2%.

The forecast for core CPI is 0.249% versus the 0.2% consensus. Analysts believe that even a headline reading of 0.5% by itself would not mean a serious deterioration in the inflation picture. A more meaningful negative signal would be an acceleration of core CPI to about 0.35% and higher.

The main risk for the sector

The flip side of the investment idea remains the possibility of a noticeable de-escalation in the Middle East. According to Freedom Broker, such a scenario could quickly remove part of the geopolitical premium from energy prices.

Analysts’ tactical view on the broader market remains neutral. At the same time, energy remains attractive as a hedge against an oil and inflation scenario, alongside select AI infrastructure companies and the semiconductor sector, provided a technical signal is confirmed.

This is not an individual investment recommendation.