Surging Oil Prices Spark Market Jitters

0:00Jason Moser.

0:05Matt Frankel:Surging oil prices spark some market jitters. This is Motley Fool Money.

0:20Matt Frankel:Welcome to Motley Fool Money with the Hidden Gems team. I'm Jon Quast, joined today by Foolish contributors Rachel Warren and Matt Frankel. On the show today, we're going to talk about some changes that are happening in the S &P 500, as well as some seemingly important news for hims and hers stock. But first, let's go ahead and start with the big news of the weekend. Oil prices surged over$100 per barrel. For perspective, it hasn't been above$100 since 2022. And it started the year below$60 a barrel. So, this is a big jump. It's actually one of the sharpest increases in history. And that's making some investors nervous.

1:00Matt Frankel:I was looking at the fear and greed index just this morning, and it's hitting extreme fear levels. And I think some investors might say, look, OK, yeah, it's going to cost more to fill up my car, maybe next time I go to fill up for gas. But what is it about these high oil prices that really changed my life, that really impact things? Why are investors panicking this morning?

1:24Rachel Warren:Yeah, there's typically a few reasons that we see investors and therefore the market shows signs of panic when there's a rapid surge in oil prices. And one of the major reasons is most companies are essentially energy consumers, right? So higher oil prices, it raises the cost of things like manufacturing, shipping, even powering the massive AI data centers that are currently driving the tech boom. And then there's, of course, the concern that if this is a long-term durable trend, this would make a company's expenses go up. There's the concern that some of the businesses might struggle to raise their own prices fast enough.

2:00Rachel Warren:This could put pressure on earnings. Right now, that risk, a lot of it is perceived. We're seeing that send stock prices down across a range of sectors. And there's one other, I think, element to consider too. Oil can be a major driver of inflation. We've seen crude cross that psychological$100 per barrel mark. There, I think, is some concern that if this is to be a durable, durable trend, this could force the Fed into a corner. Could they have to stop cutting interest rates or even start raising them again to cool off rising prices? This is something that investors hate. And then I think the final thing is that when people have to pay more at the pump, they tend to have less discretionary income to spend on other things.

2:40Rachel Warren:And that, of course, can affect a wide range of companies that face those discretionary expenditures. But it's still early days. And I think that that's the very important thing to bear in mind here.

2:50Jon Quast:Yeah, I mean, what Rachel's describing is essentially stagflation, right? Prices rising across the board, but it hurting economic growth at the same time. So, it's not surprising to see oil spike like this. In fact, I was kind of surprised it didn't spike even higher last week. This is literally the largest supply disruption in history. About 20 % of oil supply has been disrupted for about nine days so far. That is significantly worse than the previous record. If you're curious, that happened way back in 1956, the year my dad was born. Unlike previous situations, there's no spare capacity available to help alleviate the problem.

3:27Jon Quast:Just because of where this war is, Saudi Arabia, the UAE, those are the two primary holders of spare capacity to help with supply issues. Both are essentially right now cut off from the global oil market. It's not just the supply cutoff that has caused oil prices to literally double in 2026 based on the overnight peak of what was around$120 a barrel. It's fear that this is going to last a lot longer than people initially expected. We aren't really seeing significant supply constraints yet. You're not seeing gas stations run out of gas, anything like that, But it could get much worse. Rachel makes some really good points there.

4:09Jon Quast:I personally think the fear of consumers being squeezed even more than they already are is one of the big reasons we're seeing investors panic so much. Consumers are fragile right now due to inflation. This is why companies like Walmart that specialize in low prices are doing so well. Having to spend 40%, 50%, 60 % more on fuel and other energy costs could be a tipping point. That's the big fear right now. Right now in the U.S., gas is up by 15 % over the past week. I don't know what it's up where Rachel is, but I wouldn't be surprised to see it get even worse. I think it's more expensive over there normally.

4:43Rachel Warren:Yeah, we're seeing spikes, and it's being felt really across a range of sectors, which has been something that I think consumers are feeling very close to home.

4:53Matt Frankel:Yeah, I had to fill up two vehicles yesterday, and it was not as fun as a month ago. But this is so interesting. As I think about this, I don't really follow the oil industry very closely. Personally, I don't think either of you do very much, maybe more than some, but not as much as others out there who really focus on this space. I'm just thinking about this big picture. Rachel, you're talking about the things that it impacts. Matt is talking about it as well. As I zoom out, I think about how we invest as fools. We're holders. We hold stocks, generally speaking, for at least five years. And we hold through market volatility.

5:30Matt Frankel:These are big values that we have as an investing community. But Matt, you just mentioned that this being the biggest supply chain shock in history, to me, it almost feels our listeners out there might feel like it's naive to apply foolish holding principles to this situation when it's kind of historic. So I guess I'm saying, why are we not just waving our hands here at the situation? Why are we still holders? Why is it still a good idea to hold our stocks through the market volatility when it is something unprecedented?

6:04Jon Quast:I don't mean this is a shot at anybody who's an oil bull, but this is one of the reasons I don't own any oil stocks. It's one of the sectors that's really prone to volatility that is completely outside of their control. You can run your company great, but you're at the mercy of things like this. The great operators will continue to be great operators. There's no need to panic and sell Chevron, for example. In fact, when I checked right before we recorded this, Exxon and Chevron are two of the only stocks that are up on my watch list today. I'm more worried about the secondary effects. I don't think we're going to get a full-on market crash because of this.

6:39Jon Quast:But stocks that rely on discretionary spending in particular could start to come under pressure if all those economic fears and price increases really start playing out. So, times like this are when it makes the most sense to apply that principle of holding through market volatility. Ask anybody who's panicked and sold in the early days of the COVID pandemic because they were afraid of, quote, things getting worse. They were right. Things did get worse. But even after the recent market pullback, the S &P has more than doubled from its all-time high before the COVID pandemic. So, those who panicked and sold missed out.

7:13Jon Quast:So, this is where those principles make the most sense.

7:15Rachel Warren:Yeah, I mean, maintaining that long-term investment horizon during what we are seeing right now, as well as other periods of extreme volatility, it's not naive, but I think it's important to underscore. It's also, as retail investors, it is a statistical advantage. And I think that's something that's really important to bear in mind. You know, we're seeing what's happening with a lot of energy stocks right now. This is event-driven volatility, right? It hits the markets fast. The businesses with the strongest modes, the healthiest balance sheets, eventually will adapt. Now, if you're looking at the market as a whole and you're seeing this volatility impact the stocks you own, I think it's important to remember at this time, you know, when you panic sell a winner because of a temporary spike in crude, for example, that's having negative downward pressure on different industries, you aren't just dodging a dip.

8:00Rachel Warren:You are incurring the investment risk of missing that eventual recovery. And I think it's important for us to remember that great companies are built to survive cycles in the market. Various cycles in the market are inevitable. And the long-term compounding power of those businesses can usually far outweigh even a one-year headwind in input costs that puts pressure on businesses. And I think, you know, obviously there's been some concerns of a market downturn or crash. I don't think we're there yet. But I will also note, as a long-term retail investor, this can be our best friend. When we see stocks in a sell-off, and bear in mind when there's these external triggers like oil prices going up, the market rarely discriminates, tends to punish struggling stocks and compounding machines equally.

8:48Rachel Warren:And this can really, I think, create a very rare window to harvest value in really robust businesses at depressed valuations. I think sticking to our investment principles as long-term investors can prevent us from making emotional decisions at the bottom of a cycle. And that is also where the most retail wealth is lost, those emotional decisions that are made at the bottom of the cycle. So, as long as your underlying business thesis is intact, holding through the noise is key. Yeah.

9:15Matt Frankel:The late, great Charlie Munger used to say, the first rule of compounding is to never interrupt it unnecessarily. Seems like a good thing to remember here. After the break, they're shaking up the S &P 500 again. You're listening to Motley Fool Money.

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10:25Matt Frankel:Welcome back to Motley Fool Money with the Hidden Gems team. So the S &P 500, when we talk about the market, we're really normally talking about an index. Sometimes it's the NASDAQ, sometimes the Dow Jones, but most of the time for me, it's the S &P 500. This is a collection per se of about 500 to the largest profitable U.S. companies, the list is always changing. After the market closed on Friday, the selection committee announced four changes to the lineup. Match Group, Molina Healthcare, Lamb, Westin, and Paycom are all out. Vertiv, Lumentum, Coherent, and EchoStar are now in. Rachel, when looking at this list, are there any here that you're sorry to see leave the S &P 500?

11:13Matt Frankel:Or are there any newcomers here that you really like?

11:17Rachel Warren:Yeah, I think it's worth noting. So the four companies leaving the index, these have all really underperformed the market over the last year. They've been really consistently trading in the red, even as the broader market has rallied. I think Match Group probably stuck out to be, I mean, this was once a growth darling, right? But they've really struggled. Tinder, which is, of course, their flagship app, their monthly users have declined for multiple quarters. So Match Group's moving to the S &P small cap 600. And I think that's an example of a once growth-oriented favorite that is dealing with a turnaround that's taking much longer than investors had hoped.

11:52Rachel Warren:But switching over to the newcomers list, this was really interesting. I think the selection committee made a very clean sweep for AI and connectivity infrastructure with these additions, all of which I think are up by triple digits over the last year. So these have been all very high flyers in the market. You look at Vertib Holdings, for example, right? This is a company with a near monopoly on liquid cooling and high-density power systems for data centers. They have really, really strong organic growth rates. They recently upgraded their investment-grade credit rating. You've got Lamentum and Coherent.

12:24Rachel Warren:They're leaders in photonics, which is a market that's really surging due to the 1.6T transceiver rollout. Basically, it's this major industry transition, which is essential for GPUs to talk to each other within AI clusters. And then Echostar was also interesting. This is a key player in satellite infrastructure and space defense. And they've really gotten a lot of attention from investors recently due to some different SpaceX-related deals. So, some intriguing plays that have been added to the index.

12:52Matt Frankel:And that's normally how it works, right? Normally, it's businesses that are maybe declining. The stock is going down. Now, it's no longer representative of one of those large U.S. companies. And vice versa. Companies that are really, the business is booming. The stock is going up. Now it is more representative of that large cap company. And I'm glad that you brought up that for some of these, such as Vertiv and Coherent, for example, this is really playing in on this semiconductor trend. Business is hot for all of those companies. And it's kind of playing into these larger trends that we've been looking at in AI, in data centers.

13:30Matt Frankel:And some people are afraid, of course, that we're reaching kind of a bubble territory because of how the funding works out. Two of the main companies that are the source of fears for some investors would be Oracle and OpenAI. On Friday, Bloomberg reported that talks between these two companies for a data center in Abilene, Texas had broken down. The thought was that OpenAI can't get the funding, and Oracle is running into this cash crunch. Now, it turns out, Oracle reporting yesterday that those reports about the Abilene site were false. and incorrect. Matt, what are your thoughts here on the AI spending trend?

14:10Jon Quast:Matt Frankel I mean, there's too much to keep up with, honestly. But in my mind, the AI spending trend, it reminds me of what Warren Buffett said a few years ago. I think it was Berkshire's 50th anniversary, how he said the 20 % annual gains that they return are not sustainable for the next 50 years, because at some point, the numbers just get too big. In this case, you literally can't have companies spending a trillion dollars on AI infrastructure, which I think just between the Mag7, that's close to what they're spending, and they keep doubling their spending year after year, that can't go on indefinitely.

14:40Jon Quast:A lot of it seems like, to me, circular spending is what I call it. For example, OpenAI buys a lot of NVIDIA's chips. NVIDIA invests in OpenAI's next funding round, essentially giving them their money back. OpenAI places new orders for NVIDIA chips, and the cycle just goes on. I don't necessarily think AI spending is in a bubble. It just can't keep growing at this rate indefinitely. I do foresee a lot of long-tail demand, not just for GPUs and data centers, but for other types of chips. For example, CPUs are likely to play a much bigger role in the next wave of AI. Energy infrastructure to power all these things, I see that as a big long-tailed driver of demand.

15:19Jon Quast:I don't think we're in a bubble, but I don't think the growth rate that everyone expects between now and 2030 is necessarily going to happen.

15:28Matt Frankel:After the break, we'll chat about a stock that jumped 40 % today. You're listening to Motley Fool Money. When you want your spring break to feel like and your kid's pool day to feel like and your hotel bed to feel like and room service to feel like because at Hilton hospitality feels like your cabana's ready.

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16:04Matt Frankel:Welcome back to Motley Fool Money with the Hidden Gems team. For our final topic today, Hems and Hers stock is having itself a day. As of this taping, it's up about 40%. This isn't a company I follow closely. So Rachel, why on earth is Hems stock up so much today?

16:21Rachel Warren:Well, for anyone who follows this business, it's been kind of a rocky road for the stock over the last year. But Hims and Hurst just struck a massive, kind of unexpected partnership with their former legal rival, Novo Nordisk. The deal is a significant game changer because it basically ends what had been turning into this very high stakes legal feud over weight loss drugs. Investors might remember that when there was a shortage of semaglutide, the FDA They allowed compounders like HIMSS and HERS to be able to manufacture duplicates as long as that shortage was ongoing. That shortage ended over a year ago, and then they were sort of operating in this gray area where they were able to sell individualized doses.

17:03Rachel Warren:But this sparked legal action from NOVA Nordisk. Well, now, moving forward, HIMSS is going to sell NOVO's Blockbuster, Wrigovi, and Ozempic directly through their platform. And so this has them selling FDA-approved brand-name treatments rather than these copycat versions. And this comes after a few weeks ago, we had a situation where Novo was suing HIMSS for patent infringement. Now they're partners. So this removes a massive legal cloud that had been overhanging the company. It's worth noting that GLP-1 treatments are still a pretty small part of the business for HIMSS and HERS. The revenue is growing at a really incredible clip.

17:38Rachel Warren:And they reported their first full year of positive net income in 2025. So there are, I think, a lot of good news for the company today.

17:46Matt Frankel:So ever since the GameStop drama a few years ago, it seems like investors are paying a lot of attention to short interest and short squeezes more than ever. I did check this morning. 39 % of the float for HEMS stock is sold short, according to YCharts. And, Matt, I guess my question here for you is, why are investors so pessimistic about this business here, about HIMSS? But two, is this news with Novo Nordisk potentially something that causes short sellers to rethink their assumptions?

18:19Jon Quast:Well, I realize that what I'm about to say is an oversimplification, and Rachel can correct me if I'm wrong, but at least until today's news, for the past year or so, a big part of HIMSS' business model was literally copying the products of a very deep-pocketed company that had the power to fight back. I'm not that surprised at the high short interest. If I were to start a business that made my own iPhones and called them iPhones, I would expect Apple to sue me. That's why investors have been a little pessimistic. As she said, they were operating in a gray area. I don't like investing in companies that operate in gray areas of any kind.