by Reid Palmer
It’s no secret that the price of oil is top of mind right now. Unlike other developments in financial markets, you don’t need to tune into business news everyday to be aware of what’s going on. If you’ve filled up your gas tank or booked a flight in the past few months, you’re plenty up to speed.
There’s a lot of uncertainty regarding the price of oil and what may happen over the coming months. Global energy markets are severely disrupted right now, and despite information changing rapidly, the outlook generally doesn’t look all that great.
While we could speculate over what’s to come in the months ahead and how it may impact our investment portfolios, this would generally be a futile use of our time. Oil prices – undeniably of extreme importance to the global economy – are just one of an innumerable number of factors that drive stock prices over time. Making portfolio decisions based on commodity or geopolitical forecasts is ill-advised, but that doesn’t mean we don’t have thoughts on the topic.
Oil Prices & Energy Stock Returns
Energy makes up a significant component of the overall Canadian stock market. Behind only Financials, Energy is the 2nd largest sector in the country and makes up roughly 18% of the Canadian stock index1. Intuitively, rising oil prices should be positive for these firms’ earnings and share prices, which has the potential to lift the broader Canadian equity market (and has thus far in 2026).
Dimensional Fund Advisors explored the relationship in historical data for energy companies in the United States and found a correlation of 0.29% between annual oil price changes and energy sector returns dating back to 19642. A correlation of 1.0 indicates a strong positive relationship between the returns of two separate assets. While the above intuition is directionally accurate in the data, the correlation is meaningfully lower than 1.0 and can be quite noisy. In simple terms, rising oil prices have not always led to positive energy stock returns, and vice versa. 1974 and 2025, as an example, are two years when US energy stock returns had a negative correlation with oil prices. This data is not overly surprising when you consider the plethora of factors impacting stock prices.
Geopolitical Events & Stock Returns
As we have observed thus far in 2026, at least at the time of writing on May 7th, geopolitical conflicts do not necessarily have to result in disappointing subsequent stock market returns.
Dimensional also studied 21 separate global events dating back to 1990 and mapped out US stock market returns following these major geopolitical conflicts. The average subsequent return was -0.2% after five days, 1.7% after one month, 6.5% after six months, and 14.6% after one year3. This 14.6% compares to an average return across all rolling 12-month periods of 12.4%, suggesting that investors should not shy away from stocks during periods of global conflict.
Takeaway
None of this is to suggest that investors are out of the woods when it comes to a market downturn or further downside volatility. After such a strong run in the global stock market, it should be expected that a noteworthy correction will come eventually. What’s important to remember is that market corrections always come with a compelling story explaining them; 2022 was high inflation & rising interest rates, 2020 was Covid-19, 2008 was the Great Financial Crisis, and the list goes on.
While the current landscape provides plenty of fodder for anxiety around our investment portfolios, the data suggests that reacting to these headlines is often a greater risk to one’s wealth than the short-term volatility they can create. Interesting information on current global events is not always actionable, and market environments like today reinforce the importance of stoicism as investors – not ignoring the news, but recognizing that we can only control our reaction to information rather than the outcomes themselves. Maintaining this discipline allows us to capture the growth that inevitably follows periods of heightened uncertainty and stress.
References
1 FTSE Canada Domestic Index as at April 30, 2026.
2 Crill, Wes. “Oil Price Uncertainty.” Dimensional, April 2, 2026.
3 Crill, Wes. “Market Returns During Past Geopolitical Conflicts.” Dimensional, May 5, 2026.
Disclaimer: This material is provided for general information and should not be considered individual investment, tax, accounting, or legal advice, or construed as an offer or solicitation to buy or sell securities. The statements and opinions expressed are those of The Andrews Group and not necessarily those of CI Assante Wealth Management Ltd. All opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources as at the date indicated however, no warranty can be made as to its accuracy or completeness. Market conditions may change which may impact the information contained herein. All charts and illustrations in this document are for illustrative purposes only and they are not intended to predict or project investment results. In considering any particular investment or investment strategy, please remember that past performance is no guarantee of future performance. We caution you not to place undue reliance on any statements that are predictive in nature, depend upon or refer to future events or conditions, as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. The information contained herein may not apply to all types of investors. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. CI Assante Wealth Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
Links
https://www.dimensional.com/ca-en/insights/market-returns-during-past-geopolitical-conflicts
https://www.dimensional.com/ca-en/insights/oil-price-uncertainty