If you hold XOM, CVX, or XLE, you must understand today's signal.
I didn't chase energy stocks today, but I'm starting to seriously consider the price point for my next addition. The reason is an anomalous signal: Last night, oil prices surged 3% (Brent to $98.48, WTI to $92.13), but the energy sector ETF XLE only rose 0.18%. If you hold XOM, CVX, or XLE, this divergence means your future decisions can no longer be based solely on oil prices.
First thing: The relationship between XLE and oil prices is changing
XLE had a very high correlation with oil prices over the past three years—rising with oil, falling with oil.
But from the first ceasefire on April 7th until now, XLE has fallen 10.24%, the worst performer among all 11 sectors of the S&P 500. During the same period, oil prices actually fluctuated within the $85-$100 range, not falling consistently.
Last night, oil prices rose 3%, XLE only rose 0.18%. This is no longer just a weakening correlation; the market is starting to price oil and energy stocks with different logic.
What it means for you: If you were planning to add to energy stocks based on further oil price increases, that logic may not work lately. You need a new reason.
Second thing: Yardeni switched sides this week, providing a new reason
Yardeni Research (a well-known Wall Street research firm, its principal Ed Yardeni has high market attention) upgraded the energy sector from underweight to overweight this week. He had cut energy just two years ago.
His reason for switching isn't bullishness on oil prices, but bullishness on valuation repair.
Key number: XLE now has a forward P/E of only 16x, compared to 23.9x for the S&P 500 and 30x for the tech sector. The discount for the energy sector is at a level not seen since the 2022 oil price surge.
His judgment is: this discount reflects the market's assumption of a clean end to the war and oil prices returning to the pre-war $55-$75 range. He believes this assumption is wrong—the reasonable post-war range is $75-$95. Two structural reasons: 1. Damaged parts of Gulf energy infrastructure cannot be repaired; 2. Marine insurance and passage confidence have been repriced.
What it means for you: If Yardeni is right, then XLE's current 16x P/E is an opportunity for discount repair. Even if oil prices just move sideways, energy stocks have room for valuation mean reversion.
Third thing: Ceasefire expires, market's trust is running out
The ceasefire expires tomorrow night (April 22nd, Eastern Time). Trump extended the ceasefire but maintained the maritime blockade; Iran refused negotiations today. Both sides are deadlocked on the Strait of Hormuz passage rights.
On the day of the first ceasefire, April 7th, XLE fell with a big red candle. This ceasefire extension on April 21st, XLE barely moved. The market's confidence in the ceasefire narrative is diminishing.
What it means for you: A ceasefire breakdown or prolonged stalemate won't cause XLE to skyrocket immediately—but this is the environment where Yardeni's judgment gradually materializes. You don't need to bet on war, just bet that the market will eventually admit the pre-war range is gone.
My approach (for reference only)
Last week, I added a bit of XOM (ExxonMobil). Didn't add today, waiting for at least one of the three things to materialize before adding more:
1. The actual market reaction after the ceasefire expires on April 22nd.
2. XOM and CVX's Q1 earnings next week—to see if cash flow and buybacks are revised down.
3. Whether more institutions follow Yardeni's switch.
I'll add a bit if oil drops another $3. I'll go all in if it drops another $10. Not because I'm bullish on oil, but betting the 16x P/E discount on the energy sector will repair—these two things used to be the same, but now they're starting to diverge.
For friends already holding XLE or energy stocks, is your current holding assumption waiting for the ceasefire to end and oil to rebound, or waiting for sector valuation repair? The timing for adding or reducing positions based on these two assumptions is completely different.
$SPDR Energy Select(XLE.US) $Exxon Mobil(XOM.US) $Chevron(CVX.US)
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