Folks, I hate to be the bearer of bad news… But sometimes it's important to face reality. While the stock market is hoping for a rebound, and most investors are glued to headlines about AI and the upcoming election… Something sinister is happening right under our noses.
The energy sector – which was a leader last year – is quietly sliding into a bear market. And this could spell serious trouble for the broader market.
You see, energy traders are usually among the first to spot changes in the economic landscape. They're constantly analyzing global supply and demand for oil, gas, and other energy commodities. And when they start cutting their risks as a group – it's usually a sign that they're sniffing out some economic headwinds.
That’s exactly what we're seeing now. But most investors are so fixated on the “next big thing” that they aren't paying attention. Don't make this mistake! Today, I'm going to reveal why this “stealth bear market” is so dangerous… and what YOU can do to protect your portfolio.
Three Stocks Flashing Red:
My colleague Chris Johnson over at Money Morning has been closely watching this developing trend. And he says there are three energy sector ETFs that are flashing red right now:
1. Energy Select Sector SPDR Fund (XLE)
2. Oil & Gas Exploration & Production (XOP)
3. SPDR S&P Oil & Gas Equipment & Services (XES)
These three ETFs track a broad range of energy companies – from oil and gas producers to equipment and service providers. And the trends here are impossible to ignore. All three of these ETFs are now trading in bear market territory. But it's not just the charts that are worrying; it's the underlying fundamentals.
As Chris points out, energy traders are some of the best at anticipating economic turns. And right now, they’re betting on an economic slowdown – perhaps even a full-blown recession.
“It all comes down to the economy,” Chris writes. [“It has nothing to do with “Drill Baby Drill”, oil prices are moving lower because the projections for demand are going lower.”](https://moneymorning.com/2024/09/09/the-stealth-bear-market-check-your-portfolio-for-these-stocks/)
He’s right! Energy companies like ExxonMobil (XOM) and Chevron (CVX) are incredibly sensitive to changes in global economic growth. And if demand for oil and gas starts to fall – their earnings are going to take a hit.
Now, you may be wondering, “But Franklin, the Fed is ABOUT to cut rates! Isn't that bullish?”
Yes, but… The Fed is cutting rates because the economy is already showing signs of weakness – which Chris alluded to. And if the economy is going to slow, it ultimately doesn't matter if the Fed cuts rates a little now.
The demand for oil is going to fall. Energy company earnings are going to suffer. And their stock prices are likely headed much lower.
What Should You Do?
I always urge my readers to avoid panicking. But it's crucial to prepare, especially when the market is ignoring clear warning signs. So what steps should you take to protect yourself from this “stealth bear market”?
1. Reduce Your Exposure to Energy Stocks:
If you own shares of ExxonMobil, Chevron, or any other energy companies – now may be a good time to reconsider those holdings. Sure, it's tempting to “buy the dip” – but it's also important to recognize when a long-term trend has changed.
2. Consider Hedging Your Portfolio:
One way to protect your gains overall is to consider a hedge with an inverse energy ETF – like the ProShares UltraShort Energy (DUG). This ETF increases in value when the energy sector falls. It won't make you rich – but this kind of hedge can help you offset some of your losses if the energy sector continues to slide.
3. Focus on Quality Stocks:
This “stealth bear market” in energy is a reminder that it's crucial to focus on quality companies, not just hype. In tomorrow's article, I'll share my watchlist of stocks that can help you build TRUE wealth – regardless of which way the market is headed. These are the companies that have built durable, valuable brands, consistently grown their earnings, and generated strong shareholder returns.
This “stealth bear market” in energy is a warning that the bull market might not be as healthy as many investors believe. So don't rely on the headlines… Do your own research. Be prepared for anything. And get ready to profit from the opportunities that arise.
