Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Energy Stocks Got Crushed While Everything Else Rallied in June 2026
Transcript
- Lucas: So the market is ripping. S&P 500 at 7,511, the Dow just blew past 52,000 — up over 4% in five days. But then you look at energy, and it's like a completely different planet. Luna: ExxonMobil down almost 6% this week, Chevron off more than 5%. What's going on there? Lucas: It's a classic sector rotation story, but with a twist. The broad market is rallying on expectations that the Fed is done hiking — maybe even cutting later this year. But energy is getting hit from two sides at once. Luna: Crude falling? Lucas: Big time. West Texas Intermediate dropped from around $80 a barrel in early June to below $72 as of yesterday. That's a 10% decline in two weeks. And the market is starting to price in a global demand slowdown — not a recession necessarily, but softer growth in China and Europe. Luna: But isn't that exactly why the Fed might cut? So shouldn't energy benefit from lower rates too? Lucas: You'd think. But the problem is that lower rates usually signal weaker economic activity, and oil is the most cyclical commodity there is. If the economy is slowing, demand for crude drops. So the rate-cut narrative that's lifting tech and financials is actually hurting energy. Luna: So it's not just a risk-off rotation out of 'risky' energy? It's a fundamental repricing? Lucas: Exactly. Look at the options market. The put-call ratio on XOM and CVX has spiked to levels we haven't seen since early 2020. Traders are hedging hard. And it's not just short-term noise — there's a structural worry creeping in. Luna: The 'peak oil demand' thesis? Lucas: Partly. But more specifically, the idea that the energy supercycle we've been in since 2021 is running out of steam. The thesis was that years of underinvestment in new supply would keep prices elevated. And for a while, that worked. But now we're seeing demand growth slow, and supply is actually catching up — OPEC+ has spare capacity, U.S. shale is still pumping. Luna: And then on top of that, you have the regulatory headwinds and the shift toward renewables. Even if oil demand doesn't peak for another decade, the market might start discounting that sooner. Lucas: Right. So the question for a stock picker is: does this selloff create an opportunity, or is it a value trap? Let's look at the numbers. ExxonMobil is trading at about 12 times forward earnings. Chevron around 11 times. Both have dividend yields north of 4% now. Luna: Those multiples are cheap relative to the S&P 500's 22 times. But energy has been cheap before and gotten cheaper. Lucas: That's the trap. In 2014, after the oil crash, energy stocks looked cheap at 10 times earnings, and then they went to 8 times. You need a catalyst for mean reversion. And right now, the catalyst isn't obvious. Luna: What about buybacks? Exxon bought back nearly $30 billion worth of stock last year. If they keep that up, the per-share earnings should hold up even if net income dips. Lucas: That's a real support. But buybacks are discretionary — if oil stays below $70 for a quarter or two, those buybacks could get cut. And the market hates a suspended buyback more than it loves an active one. Luna: So what's your take? Are you a buyer here? Lucas: I'm cautious. I think energy could bounce if we get a cold winter or a geopolitical supply shock. But as a long-term hold? The structural headwinds are real. I'd rather wait for a clearer sign that demand is stabilizing — or for the stocks to get even cheaper, like single-digit P/E ratios. Luna: That feels like the kind of conversation that makes you realize how much context matters. If our money conversations have helped you think about a decision differently, there's a way to support the show and keep it free of ads. Lucas: Yeah, we don't run commercials, and listener support is what makes that possible. If you've gotten value from these episodes, you can find us at buy me a coffee dot com slash fexingo. Luna: It's a small gesture that goes a long way. And truly, no pressure — we're just happy you're here. Lucas: Alright, back to the energy question. One thing I think is worth watching is the options market for a potential capitulation. The put-call ratio I mentioned — if it goes even higher, that might be a contrarian buy signal. Luna: You mean like when everyone is so bearish that the only way is up? Lucas: Exactly. But we're not there yet. The ratio is elevated, but it's not at extreme levels. I'd look for a reading above 1.5 on the 10-day moving average for XOM. That's historically marked near-term bottoms. Luna: So you'd wait for that signal before dipping a toe in? Lucas: Probably. But even then, I'd keep it small. Energy is a trading sector now, not a buy and forever hold. Unless you believe in a long-term oil price above $80, which I'm not convinced of. Luna: What about the dividends? For income-focused investors, a 4.5% yield from Chevron — is that sustainable? Lucas: It's sustainable as long as oil stays above $50. Chevron's breakeven is around $40, so they have a buffer. But the dividend growth rate will slow if earnings shrink. You're basically getting a high yield with no growth — which is fine if that's what you want, but it's not a compounding machine. Luna: Compare that to a stock like JPMorgan, which is up 7% this week alone and yields around 2.5%. The total return story is stronger there. Lucas: Right. And that's why money is flowing out of energy and into financials. The rotation isn't random — it's a bet on which sectors benefit from a soft landing. Banks benefit from a steepening yield curve. Energy benefits from... well, higher oil prices, which a soft landing doesn't guarantee. Luna: So the play might be to avoid energy entirely until we see either a supply shock or a demand rebound. Lucas: Or until valuations become so compelling that the market can't ignore them. If Exxon drops to $120, that's a 7% dividend yield and a P/E of 9. At that point, even the skeptics start to nibble. Luna: But you don't think we're there yet. Lucas: Not quite. But I'm watching. And I think listeners should too — just from a safe distance. The next CPI print or any Fed commentary could shift the narrative fast. Luna: Alright, so energy is the big laggard this week. We'll keep an eye on those put-call ratios and crude inventories. Lucas: Good plan. And as always, do your own research before acting on any of this. The market can stay irrational longer than you can stay solvent — especially in a sector as volatile as energy.