The S&P 500 wrapped up 2025 with a 16.4% total return, marking its third straight year of double-digit gains. While the market finished the year unevenly, the overall picture was constructive: every major sector ended 2025 in positive territory. Growth-oriented areas led the advance, supported by a consumer that remained far more resilient than many investors expected. (All returns discussed below are total returns and include dividends.)

Technology once again topped the performance tables, rising 24.6% as spending on artificial intelligence, semiconductors, and cloud and data-center infrastructure continued at a rapid pace. Communication Services followed closely, up 23.1%, driven by strong digital advertising trends, operating efficiency gains, and improving profitability in streaming businesses.

Industrials delivered a solid 19.3% return, benefiting from reshoring activity, infrastructure investment, and healthy order backlogs across transportation, aerospace, and manufacturing. Utilities surprised many investors with a 16.0% gain, reminding the market that yield-oriented sectors can perform well when interest-rate expectations shift meaningfully.

Against that strong market backdrop, energy posted respectable—but below-average—returns. And for investors looking ahead, why energy lagged is more important than the headline number.

Energy Sector: Modest Gains, Wide Divergence

The energy sector finished 2025 up 7.9%, a reasonable outcome given the late-year pullback in crude oil prices. But that figure masks wide performance differences across industry segments. According to FactSet data, refiners, integrated majors, and midstream companies significantly outperformed upstream producers.

Refiners led the sector after struggling in 2024. The “Big Three” refiners—Marathon Petroleum (NYSE: MPC), Valero Energy (NYSE: VLO), and Phillips 66 (NYSE: PSX)—posted an average return of 24.6%. Valero led the group with a 37.0% gain, followed by Marathon at 19.2% and Phillips 66 at 17.5%.

Integrated oil companies also rebounded after a difficult prior year. The foreign supermajors delivered the strongest results, led by TotalEnergies (NYSE: TTE), up 28.3%, BP (NYSE: BP), up 24.5%, and Shell (NYSE: SHEL), which gained 22.2%. U.S. supermajors also posted solid gains, with Exxon Mobil (NYSE: XOM) up 16.0% and Chevron (NYSE: CVX) higher by 10.1%. Diversified operations helped cushion weaker oil prices, but upstream exposure still weighed on returns relative to refiners.

Midstream companies followed a strong 2024 with another excellent year. Based on FactSet classifications, the average midstream stock gained 17.2% in 2025. NGL Energy Partners (NYSE: NGL) led the group with a 100.4% gain. Only nine of the 39 midstream companies tracked by FactSet finished the year lower, highlighting the sector’s appeal to income investors in a volatile commodity environment.

Pure exploration and production companies lagged badly. The average upstream stock declined 3.0% in 2025, and more than half of the companies in the segment posted losses. ConocoPhillips (NYSE: COP), the largest pure-play producer in the group, fell 2.3%. One notable bright spot was Canada, where several producers performed well. Suncor Energy (NYSE: SU) led the group with a 29.7% gain.

What 2025 Told Us About Energy

The key lesson from 2025 isn’t simply that energy underperformed—it’s why. Returns increasingly depended on business models rather than broad exposure to oil prices. Companies with stable cash flows, pricing power, and fee-based or downstream revenue streams consistently outperformed those tied directly to upstream production.

That divergence reflects a broader shift in energy investing. Capital is flowing toward durability, balance-sheet strength, and disciplined capital allocation—not production growth for its own sake. That theme was evident throughout 2025 and is likely to remain a defining feature of the sector in 2026.

Looking Ahead to 2026

As investors look toward 2026, the outlook for energy remains mixed—but more nuanced than in past cycles. Oil prices will still matter, but they are unlikely to be the sole driver of returns. Dispersion within the sector is likely to persist.

Refiners enter the year with strong balance sheets and business models that can benefit from volatility rather than suffer from it. Integrated supermajors continue to offer diversification and income, though results will depend on how effectively management balances shareholder returns with capital spending. Midstream companies remain well positioned as long as volumes hold up and financing conditions remain stable.

Energy may not lead the broader market in 2026, but it is no longer a one-dimensional trade. For investors, that creates both risk and opportunity. The likely winners will be determined less by the direction of oil prices and more by execution, capital discipline, and where each company operates along the energy value chain.