Title: Chris Puplava: Markets Can't Ignore This Energy Shock
Show: Financial Sense Newshour
Guest: Chris Puplava (Chief Investment Officer, Financial Sense Wealth Management)
Host: Cris Sheridan
Date: 2026-09-11
URL: https://www.financialsense.com/podcast/21787/chris-puplava-markets-cant-ignore-energy-shock
Length: not stated on the page
Note: Public transcript from the Financial Sense episode page. The page carries NO timestamps, so none are given here (not deep-linkable). The PDF print named in the assignment was not found on disk; the text was captured from the public page via WebFetch and may carry light normalization from that fetch. Fillers ("you know", "I mean" interjections) removed; wording otherwise verbatim. Speaker labels as on the page.
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Cris Sheridan: Well, a September pullback appears to be underway. We're going to discuss our outlook for the market today with Chris Puplava. He is our Chief Investment Officer here at Financial Sense Wealth Management. So Chris, this week oil prices broke back above $100. Bond yields are surging on persistent inflation concerns, and AI researchers are now pricing in a 10% probability that AI kills off all humanity. That... that probably wouldn't be good for the stock market. What's your outlook given what we saw happen this week?

Chris Puplava: Well, not as dire as the AI scenario, but looking at the market, the problem is when you look at the S&P or the Dow, especially the S&P 500, the index is dominated by the tech sector. And when you look at it at the sector level or industry level, there's a lot more weakness beneath the surface. For example, when you look at mid caps and small caps, they're well below their 50-day moving averages. In fact, the mid caps are almost approaching their 200-day moving average. If you look at the Nasdaq, that's still above the 50-day. The S&P is still above the 50-day - recently tested it, but it's above it. But when you look at the sector level, the only sector outside of energy, given what energy prices have done, that's above the 50-day is the tech sector. If you look at every other sector outside of tech, they're all below their 50-day. We've seen a lot of weakness in the industrial sector. The industrial sector is almost 6% below its 50-day. And when you look at market breadth, you are seeing a lot of weakness.

One of the things I took a look at this morning was the S&P has more than 5% of the index hitting a 52-week low. With the market not far off from an all-time high, the fact that 5% of the market is hitting a 52-week low is a little bit concerning. We've seen breadth really deteriorate. When I'm looking at 52-week new highs, those started to weaken in early August - that's continued into September. But of late, in the last week, I've really seen a spike in new 52-week lows. That, plus a weakening consumer discretionary sector and a weak industrial sector, is something of concern.

And when you look at the index as a whole - the S&P - we've seen a real deterioration in the last couple of weeks here. Just a few weeks ago, the percent of stocks above their 200-day moving average was roughly at 75%. Currently, we're at 57%. So, a huge drop just over the last two weeks. And when we look at stocks above their 50-day moving average, last month we were looking around 70-72%. We're at 33% now. This is almost at levels that you see near intermediate-term bottoms. So, outside of the index level, there is a lot of weakness when I look at new 52-week lows. I mentioned that the S&P, we're seeing about 5-6% of the entire index hitting 52-week lows. What's concerning is that of the sectors, the one dominating the 52-week lows is consumer discretionary. Consumer discretionary has 26% - that's more than one out of every four consumer stocks hitting a one-year low.

To me, when I look at the consumer stocks dominating new lows and energy dominating new highs, it's very clear to see that the war - the Iran war - is starting to really impact things here in California. I recently saw that diesel prices hit $10 a gallon.

Cris Sheridan: Oh, well, I've got to correct you on that! The gas stations only have places for three digits, so they hit $9.90, and thankfully they don't have a place for a fourth digit; they can't go higher than $9.99, Chris.

Chris Puplava: I was kind of wondering about that. But yeah, it really just shows there's a lot of strain out there. The big concern, Chris, is that this is escalating. What happened overnight was the Houthis attacked the east-west pipeline in Saudi Arabia. Essentially, what Saudi Arabia is doing is piping oil to its west coast to get out through the Suez Canal or the Bab al-Mandeb Strait. If the Houthis block both of those, then we have a real serious issue.

On top of that, you've got Ukraine, which is becoming very effective at hitting the Russian energy sector - whether that's tankers or refineries. So we really have an energy squeeze globally, and there seems to be no signs of a near-term peace deal. If anything, things are escalating. And when you look at U.S. inventories - strategic petroleum reserves, commercial reserves, or even other countries like China - China is just now starting to rebuild or increase its imports of oil.

So, that's the concern I have for this market. The market has been able to shrug off the whole Iran war and this energy shock for some time, but I think we're getting past the point of no return, where we could really see energy prices shoot up unless we have some kind of a peace deal. The big concern for the market is that rising energy inflation is pressuring interest rates higher, which is causing central banks to raise rates. We saw the ECB raise rates. Looking at the Fed, the futures market is pricing a 90% probability the Fed hikes rates next week, and the odds of a second rate hike before the end of the year is at 65%. So: 90% chance we raise rates next week and 65% chance of a second hike before year-end. Obviously, that would pick up if interest rates and inflation continue to push higher.

So the real concern is the market's been able to shrug off a lot of bad news, Chris, but I think we're getting to the point where, when you look beneath the hood - if you strip out the tech sector, which has been a huge buyer of its own shares - a lot of that strength is centered in tech with their massive buybacks, and we're about to hit the blackout period. My concern is that, when you look at the index, the only thing holding it up is the energy sector, which is small - only around 2-3% of the S&P. The big one is the tech sector, but once we enter that blackout period, that support from tech could be lost, and then there's really nothing holding the market up.

So I am concerned about a correction. That is my biggest concern for the markets in the next couple of weeks. On the positive side, we are getting really close to the favorable side of the presidential cycle pattern. Historically, markets hate uncertainty - obviously that's what we're dealing with in the Middle East - but in terms of political uncertainty, the markets tend to bottom just before the November midterm election, and once that uncertainty is gone, they have a strong move going into almost November of the third year of the presidential cycle. Then we have to start thinking about who's going to be the next president. After the fourth year, the market tends to wobble a bit. But we are entering that favorable period where we're going to have political uncertainty behind us.

But that may not be the case this time. It's always dangerous to say, "this time is different," but the concern would be if the Republicans lose the House and Senate, we could have some serious uncertainty if the Democrats try to impeach Trump or unravel a lot of his policies. But if we have gridlock, where the Republicans can maintain the Senate - the odds of losing the House are exceptionally high - but if we can have basically a stalemate or gridlock, I think that removes uncertainty and the markets should do well again. But the biggest unknown is the outcome of the war in the Middle East. So I think if we get the political uncertainty behind us, I don't see any signs of a recession ahead. Or if we get any favorable news out of the Middle East, then the market could really have a good run going into the end of the year.

Cris Sheridan: Yeah. It's interesting - we were speaking about this on FS Insider this week - not only do you have the events in Iran, with the Houthis now taking over the Bab al-Mandeb Strait as well, but there's also the ongoing war in Ukraine. Of course, Russia was a major exporter of refined products; they are no longer. But there are attacks on energy infrastructure in Russia - diesel being a case in point. We see disruptions at the Black Sea port. So it's not just the Iran war, but also things that are escalating and widening in Russia and Ukraine, which is important when we think about the longer-term outlook for inflation and oil prices. And on top of that, even if oil prices were to stay at current levels or go down, when you look at crack spreads - that is, the difference in price between input crude and refined products like diesel, jet fuel, gasoline, and all the myriad refined products that come out of petroleum - those are also at record highs. So unless you see crack spreads come down, which doesn't seem very likely, that's also creating a tailwind for higher inflation as well.

Chris Puplava: That's correct, Chris. The world doesn't run on oil - it runs on refined products: diesel, jet fuel, gasoline. And while we have large reserves of oil (again, with the Biden administration releasing the Strategic Petroleum Reserve back in '22, and then Trump this year), we're at 1982 levels - so our SPR is at record lows. But we don't really have the stockpiles of refined products. That is the problem: we really don't have that spare capacity when it comes to refining crude oil. We can only do so much with crude, but when you look at refined products, that's where - when you look at the price of diesel or jet fuel - it would be equivalent to oil being north of $150 a barrel. So it does show where the bottleneck is: on refined products, and there's no simple solution.

Absolutely, there is a lot of pain. That's a lot of inflation in the pipeline when it comes to transportation costs, food, and other things. So that is the big concern: if we don't have peace in the Middle East soon, or some kind of a resolution or standstill, we're going to have continued inflationary pressures building that will force central banks all over the world to raise rates - which is a difficult backdrop for risk assets.

Cris Sheridan: Yeah, so there's a major bottleneck there for global refineries - not just here in the U.S., where we're not really building new refineries, just expanding pre-existing ones. We see refinery production being curtailed or damaged in a variety of areas globally - Russia, Iran, so major areas for exporting refined products. And we're seeing that with crack spreads, which is also causing problems when we think about the inflationary outlook. And given what you said earlier, Chris, if I understood this correctly: when you look at the S&P 500's sectors, right now, the market is being held up primarily by tech and energy. Those are really the only two sectors in the green at the moment.

Chris Puplava: That's correct. When you look at sectors above their 50-day, those are the only two. Every other sector is below its 50-day moving average. As I mentioned, the industrial sector has been so weak it's closing in on its 200-day. And when you look at consumer discretionary, as I mentioned - one in four stocks in that sector at a one-year low - so that shows real significant weakness in consumer stocks.

The one positive thing, again, is it's not just tech that's holding the market up. The other factor is the U.S. Treasury's General Account at the Fed - basically the government's checking account. At the end of August, it was over a trillion dollars. Now, it's at $843 billion. So, the government has spent over $160 billion, injecting that just since the end of last month. So, in the last week and a half, the government's injected a lot, and at $843 billion, there's a lot more it could go. I think the government is trying to pull out all the stops to suppress the price of oil and suppress the price of interest rates. The Treasury just announced its increased buyback program. But there's really only so much it can do - these are all temporary Band-Aids. What we need is a lasting solution in the Middle East; we really need to bring the energy inflation in. Otherwise, you're going to see continued pressure on interest rates, inflation overall, and central banks.

So, I do think the storm clouds are building. I think when you take away the tech sector and the cash being thrown at the market by the Treasury, things are looking a lot more precarious. Near term at least, I do think storm clouds are building. I'm not too concerned about the longer term, but at least near term, I think it does make sense - if you have cash on the sidelines, that's a good thing. I wouldn't panic yet, but I do think we have a little bit of weakness ahead. So if you're planning on investing any money in the markets, I would hold off until we have a little bit more of a flush.

Cris Sheridan: One thing Ed Yardeni said when we spoke with him on FS Insider - about why he thinks this "roaring 2020s" bull market is going to persist through the remainder of this decade - is the fact that baby boomers, the largest generation now moving into retirement, also holds the largest amount of assets we've ever seen, at $90 trillion. Cumulatively speaking, that's a lot of money. So he made the point - I think it's a really good one - that even with interest rates going up, which of course raises borrowing costs, that actually benefits a lot of baby boomers. They've paid off their mortgages, they've paid off their loans, and essentially, if they have cash sitting in bonds or in money market funds, those higher interest rates help them. At the same time, they're probably not going out making large purchases like a new house, so they're not as impacted. And they have this $90 trillion in accumulated wealth that they're spending. So, that's why he's not super concerned about the increase in interest rates or even inflation - he thinks they have the ability to buffer that. And unlike what we saw in the 1970s, where the economy and consumers were much more reliant upon oil, we've seen that come down considerably over the past 40-50 years.

Chris Puplava: We have seen the energy intensity come down. Certainly, we're obviously a lot less reliant on foreign energy; we're more self-reliant. The problem though, Chris - the big difference - is that back in the 1970s, when you look at debt-to-GDP for the overall economy, it was significantly lower. For the central bank that wants to tighten monetary policy, the higher interest rates go, that just leads to a bigger budget deficit, which means the government is going to have to issue even more debt, pressuring rates even higher. The more the government spends on interest - yes, it's the government's expense, but it's someone else's income.

To your point, I think that's really why we've seen this K-shaped recovery, where the high-end consumer - the consumer that has assets, benefits from the stock market, has assets in fixed income and T-bills, is generating income - they're benefiting and they're doing much better than those who don't have assets, who are living paycheck to paycheck. It's the low-end consumer, Chris, that is really getting hurt. And even the first-time homebuyer - it's great if you already own your home, but if you don't and you want to buy, you can't afford it. You've got high interest rates and high home prices. That's why existing and new home sales are at exceptionally low levels - there's just no activity in real estate. Real estate is a huge part of the economy, with a huge knock-on effect, and it's one of the first movers of an economic cycle; it's very sensitive to interest rates.

So if you strip out AI, and when you have a housing industry in the dumps, really the only thing holding the U.S. up is, when you look at private investment and data center buildout, that's obviously positive. But if you strip out private investment from AI and look at non-AI private investment, Chris, it's shrinking on a nominal and real-adjusted level. Part of that is tariff uncertainty, so it's hard for a business to make expenditures. But overall, there's a lot of the economy suffering from high interest rates - it's freezing businesses from making decisions, it's freezing the consumer from being able to buy a car or a home. So, to me, it just leads to a fragmented economy, where those with assets are doing much better than those living paycheck to paycheck.

Cris Sheridan: Well, as always, for any of you listening, if you'd like to get in touch with Financial Sense Wealth Management to inquire about our comprehensive financial services or asset management, you can do so by giving us a call at 858-486-3939. If you have any questions about what we discussed today, or if you'd like to explore any of these topics further in terms of our outlook, feel free to give us a call or you can shoot us an email at cisinancialsense.com. Chris, if anyone would like to get in touch with you about what you brought up in today's discussion, what would be the best way for them to contact you?

Chris Puplava: They can reach me at (888) 486-3939 or they can shoot me an email at Chris[dot]puplava[at]financialsense[dot]com.