Morgan Stanley's CIO says markets are signaling energy prices have already peaked

• The market is flashing a signal that it sees lower energy prices from here, Morgan Stanley’s Mike Wilson said.

• The recent pullback in energy stocks signals that markets are pricing in lower oil and gas prices.

• Wilson and his team expect the oil price peak to mark the lows for stocks.

The market is sending out a signal that it thinks the worst of the energy-price shock may be over, according to Morgan Stanley’s top stock strategist.

The signal is being sent by energy stocks, which have pulled back from Iran war-driven spikes. Morgan Stanley’s equity strategy team, led by chief investment officer Michael Wilson, said the sector has already hit its peak, signaling lower energy prices are coming.

“From an equity standpoint, energy stocks’ relative performance also appears to have peaked and turned lower. Thus, the market is signaling lower oil and gas prices between today and year end, and perhaps materially so,” Morgan Stanley wrote in a note to clients on Monday.

Oil prices have surged since the onset of the Iran war. Both WTI oil and Brent crude are trading above $100 with the war in its second month, climbing back above the threshold after tumbling sharply last week. Still, crude prices are off the highs seen earlier in the war, when Brent oil briefly hovered at about $120 a barrel.

Energy stocks have moved in tandem with energy commodities, dramatically leading year-to-date gains .

The State Street Energy Select Sector ETF hit a 52-week high on March 27, roughly one month into the Iran war. Energy is the top-performing sector in the S&P 500 year to date, up 27%.

Morgan Stanley’s equity strategy team recommends fading energy stocks, focusing on refiners compared to exploration and producers.

The team also compared the moves to last year’s “Liberation Day” tariff announcements. They examined the peak rate of change in recent oil prices to trade uncertainty generated by Trump’s tariff policies. When trade uncertainty peaked, it marked a low for the stock market. Morgan Stanley says they expect the market reaction to oil price peaks to follow a similar pattern.

“We also contend that the global economy is a lot more resilient than many give it credit for and it has a way of managing such bottlenecks better than one might think. This time is no different, in our view, as shippers and buyers of crude get creative,” they wrote.

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