Good morning, investors. Today we remember the 2,977 victims killed in the 9/11 terrorist attacks. Take a moment to think of the families, first responders and heroes who helped rebuild lower Manhattan in the aftermath.
Cheap and bullish
The bull case for energy stocks keeps getting more compelling.
The S&P 500 energy sector has outperformed every other group year-to-date and yet it’s still trading at a discount relative to the rest of the index.
Investors — including myself — entered 2026 optimistic on energy on account of the AI boom, but the Iran conflict and elevated oil prices have bolstered the case to keep it in your portfolio.
The chart below from DataTrek Research’s Nick Colas and Jessica Rabe captures the sector’s rolling 100-day performance relative to the S&P 500 since 2010.
Historically, energy has lagged the benchmark by an average of 2 percentage points over any given 100-day stretch.
Every so often, the sector breaks out.
It’s rallied more than three standard deviations above normal just three times in 16 years:
Post-pandemic reopening in 2021
Russia’s invasion of Ukraine in 2022
This March when the Iran conflict began and oil spiked
Historically, those spikes fade quickly, though this year energy has already cooled off and started climbing once again.
Large-cap energy stocks have beat the S&P 500 by double-digits over the last 100 days but, somehow, they remain less than one standard deviation above the long-run average and nowhere near overbought.
Relatively cheap valuations, too, make energy attractive.
The sector trades at 14.2x expected earnings versus nearly 20x for the S&P 500. That discount partly reflects Wall Street’s expectation that earnings will shrink next year.
To be sure, energy often trades cheaply because its profits are tied to commodity prices.
Yet DataTrek also noted that this earnings drag is a function of forward futures pricing:
West Texas crude trades near $100 a barrel today
The CME contract for December 2027 prices oil is near $72 a barrel
That 25% drop in futures pricing more than explains the expected earnings decline, in Colas and Rabe’s view.
The bullish argument remains straightforward.
Energy stocks already reflect a meaningful decline in oil prices, trade at a discount to the market, and offer exposure to a cocktail of tailwinds including geopolitical uncertainty, rising power demand and the AI infrastructure buildout.
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Elsewhere
📊 Wholesale prices advanced in line with expectations in August. Headline PPI is now up 5.4% year over year, with services doing most of the lifting. (Yahoo Finance)
🤖 OpenAI is coming for the junior-banker seat. ChatGPT for Financial Services rolled out with tools that target the modeling, memo and pitch-deck work that has anchored the analyst grind for a generation. (CNBC)
🏦 The Fed sees Friday's CPI as the last real data point before its FOMC decision. Officials have flagged services and shelter as the components most likely to shape the vote, with hike odds now the highest of the cycle. (Yahoo Finance)
Full Signal
Eric Wallerstein is chief macro strategist at Clocktower Group and a former Federal Reserve advisor. We sat down to discuss why he doesn’t think the Fed should hike rates at all this year, the unique trade ideas he likes right now, and his take on fast-rising bond yields.
Tune in on Spotify, Apple Podcasts, or YouTube.
Rapid-fire
President Trump pledged a $5,000 midterm dividend to every American if Republicans win (Yahoo Finance)
Elon Musk's Boring Company raised $3 billion in its latest fundraising round (TechCrunch)
Mortgage rates crossed the 7% threshold for the first time in over a year (Yahoo Finance)
10-year bond yields rose above 4.9% on Thursday (WSJ)
Apple’s new CEO is already running the Tim Cook product playbook (Opening Bell Daily)
AT&T's CEO said Starlink can play a complementary role alongside the carrier's own network (Yahoo Finance)
On this day
🗓 September 11, 2001: Terrorist attacks halted trading on the NYSE and Nasdaq, opening the longest US market closure since 1933. Both exchanges reopened six days later with the Dow logging its largest one-day point drop to that date.
Last thing
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