U.S. energy shares are soaring as investors benefit from rising oil prices and a stronger-than-expected economy, while seeking to protect their portfolios from a feared resurgence of inflation. The S&P 500 energy sector is up about 17% in 2024, roughly doubling the broader index’s year-to-date return. Its gains have accelerated in recent weeks, making it the S&P 500’s best performing sector in the past month. One key driver is the price of oil: U.S. crude has risen 20% year-to-date due to an unexpectedly strong U.S. economy and worries over a broadening Middle East conflict. Some investors also believe rising energy shares could hedge against U.S. inflation. Consumer price rises have proven more stubborn than expected this year, threatening to restrain the broader stock rally by undermining expectations for how much the Federal Reserve will cut rates in 2024. Energy stocks have risen as a U.S. equities rally has broadened beyond the growth and technology companies that led gains last year. Investors’ appetite for non-commodities-related sectors could take a hit, however, if inflation expectations keep rising and worries about a hawkish Fed grow. Inflation fears have made markets more turbulent in recent weeks. Outside of equities, concerns over rising consumer prices have lifted gold, a popular inflation hedge, to record highs. Energy stocks were also thriving outside the U.S. Shares of miners, steel firms and other commodity-linked companies have risen along with energy stocks. Analysts are also noting comparatively low valuations. The S&P 500 energy sector trades at 13 times forward 12-month earnings estimates compared to nearly 21 times for the overall S&P 500, according to LSEG Datastream. Oil prices could take a hit if Middle East tensions ease, or if global growth starts to wobble, potentially clouding the outlook for energy shares. Conversely, strong economic growth could boost corporate profits and steer investors into other sectors that have done well this year, such as industrials and financials. Companies in the S&P 500 are expected to increase earnings by 9% this year, LSEG IBES data showed. Still, some investors believe the economy could begin slowing in the coming months, allowing the Fed to cut rates in June. It is important for investors to manage their portfolios for a range of outcomes.