Market Commentary: The Devil is in the Details

Since the signing of a Memorandum of Understanding (MoU) between the U.S. and Iran, energy stocks have given up most of their gains and oil prices have fallen precipitously from recent highs. Both parties agreed to a 60-day ceasefire to hammer out the details—they reported encouraging progress from last Sunday’s meeting in Switzerland with Vice President JD Vance and Iran’s minister of foreign affairs, Abbas Araghchi in attendance.

After signing the MoU, oil has begun to flow more freely. On June 20, the U.S. Central Command reported that 55 merchant ships, up from fewer than 10 vessels a day, safely transited the Strait of Hormuz as U.S. forces continued operating in the “general area.” During peacetime, about 135 vessels transit the waterway daily. However, the outlook is still far from certain. It will likely take months for the Middle Eastern countries’ production and exports to return to pre-war levels and even longer for consuming nations to refill depleted inventories.

S&P 500 Energy Index vs. WTI Crude Oil

Note: As of 6/19/26, crude oil prices are approximately 14% above the level on 2/27/26 while the S&P 500 Energy Index is about 5% below. Source: Bloomberg and S&P Global

THE DEVIL IS IN THE DETAILS

The stock market appears complacent regarding energy prices and resolution of the Mideast Conflict. We hope for the best but must plan for the worst. Here are several things that may upset the status quo:

1. As described in the very first paragraph of the MoU, there must be a permanent Israeli/Hezbollah ceasefire in Lebanon and “the territorial integrity and sovereignty of Lebanon” ensured. While there were already skirmishes last Friday when four Israeli soldiers were killed and Israel retaliated with air strikes, subsequently, cooler heads prevailed and U.S. negotiations with Iran have resumed. But we remain skeptical that Israel will agree to depart southern Lebanon as long as its northern settlements are at risk.

   
   

2. Iran has agreed to charge no fees for allowing tankers to transit the Strait of Hormuz “for 60 days only.” What happens after 60 days? “The Islamic Republic of Iran will conduct dialogue with the Sultanate of Oman, to define the future administration and maritime services in the Strait of Hormuz…in line with applicable international law and the sovereign rights of coastal states of the Strait of Hormuz.” In our view, this leaves the door open—reminiscent of the Mafia—for Iran to later impose something like "protection insurance" once the 60-day window expires.

   
   

3. Iran will get billions of dollars from its oil exports, unfrozen assets, lifting of sanctions and a proposed reconstruction and economic development fund of at least $300 billion. There have already been reports that Iran intends to funnel money to Hezbollah.

   
   

It’s not until paragraph 8 of the MoU that nuclear energy and weapons are addressed. Iran agrees “that it shall not procure or develop nuclear weapons” and the parties will discuss Iran’s nuclear needs. I’ve seen this movie and it did not end well…the devil is in the details.

WHERE WE STAND: The daily noise arising from the Mideast conflict and artificial intelligence (AI) news obfuscates the structural changes that have and continue to occur in the energy industry.

Here are just a few observations:

1. Financial discipline. Throughout the energy value chain, companies are prioritizing balance sheet strength and return on capital, high grading projects, generating free (excess) cash flow, and returning cash to shareholders. Note how the script has flipped. It’s the technology sector that has become capital intensive, is outspending its cash flow, and relying on external capital.

   
   

2. U.S. energy companies benefit from increasing exports. The Russia/Ukraine and Middle East conflicts underscore the importance of reliable, available, and affordable energy. The U.S. will continue to help fill the void by increasing petroleum and natural gas exports.

   
   

3. Growing power demand. The Energy Information Administration (EIA) expects U.S. electricity use to grow by 1% this year and 3% in 2027. According to the EIA, this increase would mark the first time since 2007 that power demand has risen four years in a row and reflects the strongest four-year growth period since 2000. The agency attributes the growth to increasing demand from large computing centers.

   
   

4. Hedge against geopolitical risk and inflation lasting higher for longer. What may be lost on investors is that the energy sector was the best performing sector during the first (lost) decade of the 2000’s. Energy returned + 144% cumulatively (14.4%/yr) while the S&P 500 lost approximately 0.9%/yr. When technology stocks tanked in 2022 and the S&P 500 declined ~18%, the energy sector delivered a ~65% return!

   
   

5. Valuation: The S&P 500 energy sector remains among the cheapest of the S&P 500 sectors on a price-to-earnings metric. Based on 2027 estimates, the sector trades at a 2027 P/E multiple of 13.5 times versus 19.0 times for the S&P 500. According to the latest Barclay’s valuation table, the oil E&P commodity sensitive sector’s valuation is discounting ~$65/Bbl WTI prices versus ~$71/Bbl strip prices.

At SAM Partners, we focus primarily on the midstream energy subsector - infrastructure companies that are largely insulated from swings in commodity prices. These companies provide the critical infrastructure that supports our growing domestic power needs and exports. Some investors are concerned that the sector no longer appears "cheap" compared to its historical valuations. (See Wells Fargo table below).

While this is true, it overlooks the sector's transition to a more disciplined, lower-risk financial model (as discussed above), as well as the growth opportunities tied to rising power demand and exports. Context matters! Stocks spend roughly half their time trading below their long-term average valuation, and half their time above it. In our view, the secular tailwinds should push valuations toward the upper half of that range. We continue to favor stocks tied to natural gas infrastructure.

Midstream Valuation

Source: Wells Fargo Midstream Monthly Outlook: June 2026

CHENIERE ENERGY (NYSE: LNG) IS TRADING BELOW ITS PRE-WAR PRICE

On February 27, prior to the U.S. and Israel military action against Iran, Cheniere’s closing stock price was $235. It subsequently spiked intraday to $300 as Qatar’s Las Rafan LNG complex, the largest in the world, lost 17% of its capacity and its expansion plans were set back by several years. This disruption of LNG supply is seen as a positive development for those concerned about a potential excess of LNG supply in 2027–2028. The Dutch TTF European benchmark natural gas price subsequently spiked, and U.S. LNG margins expanded. (See chart below).

Cheniere has benefited from temporarily improved margins but it’s long-term value proposition via the expansion of its LNG export capacity that is poised to increase nearly 50% from over 52 bcf/d to 75 bcf/d by 2030, has not materially changed. Its LNG expansion projects are underwritten with 20-year contracts and will be ultimately 95% contracted. In other words, only about 5% of its cash flow is subject to commodity prices.

OUR BOTTOM LINE: We have been buyers of the stock. We are fans of the long-term story and believe the stock probably got ahead of itself in the rapid rise to $300, but makes no sense to be trading below its pre-war price. For additional details, please see our 10.08.2025 fireside chat.

Dutch TTF and Henry Hub Natural Gas Prices ($/mmbtu)

Source: Bloomberg

MAY: TECH LEADS MARKET RALLY

The rundown:

• In May, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of -4.5% compared to 5.3% for the S&P 500 and 0.8% for its customized benchmark. The performance relative to benchmark reflect our overweight in midstream and lower weights in the utilities and clean energy sectors.

  
  

• In May, SAM’s Energy Transition Portfolio generated a return (net of fees) of -5.3% vs 4.7% for its customized benchmark.

  
  

• SAM’s portfolios are more heavily weighted in Midstream, which underperformed relative to the clean energy sector and was slightly better than utilities in May.

  
  

• Midstream underperformed the overall market and was down in May with a total return of -4.3% as measured by the AMNAX.

  
  

• In May, the clean energy sector outperformed the overall market, generating a total return of 14.1% as measured by the S&P Global Clean Energy Index. For the month, utilities underperformed the market with a total return of -5.2% as measured by the Philadelphia Stock Exchange Utility Index.

  
  

• Except for Information Technology, Health Care and Consumer Discretionary, all sectors’ performance in the S&P 500 was negative. Energy was the worst performer and Technology was the best. Energy delivered a -5.6% monthly total return. May month-end WTI crude oil and Henry Hub natural gas prices were $91.16 per Bbl and $3.34 per MMBtu, down ~16% and up ~27%, respectively, from last month.

YTD 2026 Total Return

Source: Bloomberg, NASDAQ and S&P Global

RESULTS: SINCE INCEPTION & ONE YEAR

SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 189.0% and 23.4% for the periods since 11/10/20 inception and 1-year, respectively. This compares to a total return of 180.6% and 35.5%, respectively, for its customized benchmark and 131.8% and 29.8%, respectively, for the S&P 500 as of 5/29/26.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 53.0% and 26.5% for the periods since 4/29/21 inception and 1-year, respectively. This compares to a total return of 72.4% and 56.1%, respectively, for its customized benchmark and 93.8% and 29.8%, respectively, for the S&P 500 as of 5/29/26.

Sam Partners’ Infrastructure Income and Energy Transition Strategies seek to provide sustainable income and growth with capital preservation. This is accomplished by investing in a concentrated portfolio of high-quality midstream energy companies, utilities and clean energy companies that are well positioned to participate in the energy transition to a net zero carbon future. A diversified approach to investments across these sectors should optimize risk-adjusted returns, in our view. Our Infrastructure Income Strategy offers investors a current yield of ~4% and growth potential of ~5-7%; while the Energy Transition Strategy that is more heavily weighted with clean energy stocks and aligns with favorable ESG ratings, offers investors a current yield of ~3.0%. In a world searching for yield, we believe these Strategies offer a compelling value proposition.

IMPORTANT DISCLOSURES

Siegel Asset Management Partners is a registered investment advisor located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.