One thing investors need to keep in mind when investing in the energy sector is that oil prices are highly volatile. While the current geopolitical situation in the Middle East is newsworthy, the reaction in the oil markets is rather predictable. But the lingering story on Wall Street may not be about oil prices; it could quickly return to inflation.
Inflation is already a problem
Target (TGT +3.17%), a large U.S. retailer, saw its sales drop 1.5% in the fourth quarter of 2025. Its organic sales were off by 2.5%. The problem for the company is that consumers are worried about rising prices and, thus, they are being cautious about spending. Target tends to offer higher-priced products and a more premium shopping experience than its closest peer, Walmart (WMT +2.15%).
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Walmart's focus on everyday low prices, however, has been resonating with consumers. The company's most recent quarter saw sales rise 4.6% and same-store sales rise by the same amount. Relatively speaking, Walmart is eating Target's lunch right now thanks to consumers' belt-tightening efforts.
The inflation concerns that are driving this dichotomy have receded from the headlines as the current geopolitical conflict is more newsworthy. However, that doesn't mean that inflation has gone away.
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Higher energy prices could make the problem worse
Oil prices have risen very quickly as the Middle East's ability to supply the world with oil and natural gas is at risk. The price of energy has whipsawed back and forth in response to news flow and investor sentiment. However, higher oil prices will eventually flow through to consumers and the inflation data.
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When that happens, inflation will once again become a headline-grabbing news item. There will be a direct impact on consumers as they fill up their gas tanks, but there's also a more insidious impact since transportation and production costs will rise for companies, as well. That will take a little longer to flow through to consumers, but it will eventually show up in product prices.
However, even if oil prices return to lower levels, energy prices are just one part of the inflation picture. The inflation and economic concerns that existed prior to the rise in oil prices haven't gone away just because they've fallen out of the headlines. The companies that were doing well before geopolitical tensions erupted are likely to remain well-positioned for success. And, conversely, the companies that were struggling are likely to continue to struggle.
