What follows an oil supply shock? It depends on underlying market dynamics

Investors looking for growth in 2026 but concerned about the possible effect of reduced global oil supply received a reminder about the resilience of US sharemarkets in early May. The S&P 500 rebounded to hit record highs several times following strong results in the recent US company reporting season.

The rebound occurred despite oil prices remaining high and global supply levels remaining uncertain, with no firm end to the US-Iran conflict in the Middle East in sight. 

Over the past 50 years, market reactions to oil price shocks have varied considerably, with some resulting in a recession, while economies have recovered relatively quickly from others.

The US is also now a net exporter of crude oil, which means oil-producing companies and states will benefit from price increases, which makes it easier for the US economy to absorb some oil price rises. 

Across the Atlantic, European Central Bank (ECB) President Christine Lagarde has warned that the ECB will act to keep a lid on inflation by raising interest rates if it needs to.

Closer to home, with higher oil prices expected to push up food prices, the Reserve Bank of Australia has lifted interest rates for a third time this year, raising borrowing costs by 25 basis points to 4.35 per cent at its May meeting.

The stop-start nature of both the conflict and negotiations to end it has made predicting the effect of this particular oil shock on the global economy difficult – but the longer it goes on, the greater the risk to global markets.  

What now for investors focused on growth investment opportunities? 

That means diversification to spread risk is increasingly important, particularly for any investors likely to need to draw on their investments in the short term. 

Last month, we canvassed several ways to invest through volatility, including to:

• invest in inflation-linked government bonds.
• take profits and reallocate to undervalued sectors.
• consider safe havens.
• adopt a more conservative investment mix. 

As we noted, if markets recover more quickly than expected, lower-risk investment types such as cash are unlikely to keep pace – although a higher interest rate outlook may make this option more attractive to some investors. 

Value shares can play an important role when markets are moving around. 

They also tend to offer more stable earnings and dividend income, which can provide a cushion in uncertain markets.

Since 2012, value-style returns have averaged just under 10.0% per year¹, with a compound annual return of 9.3% and volatility (how much returns vary from year to year) of 11.9%. 

In contrast, growth stocks – led by large US technology companies currently including NVIDIA, Apple and Microsoft – have delivered stronger returns, but with more volatility. Over a similar period, growth-style returns averaged 15.7%, with a compound annual return of 14.1% – but volatility has also been higher, at around 18.6%².

Looking at the most recent 12-month period at the time of writing, the MSCI World Growth Index is up 33.1% for the 12 months to 8 May 2026, compared with 26.3% for the MSCI World Value Index over the same period. Growth returns were buoyed by the most recent earnings results and popularity of AI-linked stocks. 

However, barely three months earlier, the MSCI Value Index was outperforming its Growth Index counterpart over the previous 12 months (to 31 January 2026), up 21.0%, while the Growth return at that time was 17.7%.

This highlights another opportunity for diversification, particularly for investors heavily weighted toward developed markets.

An examination of returns for CFS’ FirstChoice Wholesale Investment options for the 12 months to 31 March 2026 reveals some other interesting trends⁴. 

These figures show continuing strong growth over the three months to 31 March (which includes the first month of the US-Iran conflict) as well as the previous 12 months, from a range of options specialising in investment types such as:

• Global infrastructure securities 
• Global natural resources shares (mining and materials related companies)
• Alternative investments – including managed futures, commodities and multi-strategy hedge funds.

Of these, Infrastructure delivered the most consistent performance over the past three months, as well as the past 12 months. 

Periods of disruption, such as an oil supply shock, can create uncertainty for investors – but history shows markets don’t move in a straight line. Even against a backdrop of elevated oil prices and geopolitical tension, share markets can recover quickly when underlying conditions remain supportive. 

For long-term investors, this reinforces the importance of staying invested and maintaining a disciplined approach, rather than reacting to short-term movements driven by headlines.

At the same time, conditions are evolving, and it’s important that your investment approach continues to align with your goals, time horizon and tolerance for risk. 

In turbulent times, reviewing your portfolio – including how well diversified it is across different asset classes, sectors and regions — can help ensure you’re well positioned to navigate uncertainty while still capturing opportunities for growth over time.