May 1, 2025 | Next General Stock Market Decline Underway. Energy Stocks Likely To Reach Table Pounding BUYS Again In Late May

The Canadian Federal election resulted in a minority Liberal government that will need legislative support from the Bloc. Its leader has said he would support the new government for a year if the Liberals spend $2B more in Quebec. Is this for housing, the high speed train between Montreal and Quebec City or more generous social services that apply to only Quebec? The Bloc now has the bribing power that the NDP had in the Trudeau era.

We are watching the following to see if Prime Minister Carney will manage the country for their electoral base in Ontario and Quebec or for all Canadians.

• Will he be diplomatic or ornery in his deliberations with President Trump over the tariffs. His initial comments on election night were not diplomatic but more antagonistic. Does he think he is David against Goliath?
• Will he fill his cabinet with left leaning ideologue Trudeau sycophants or bring in more blood that reflects Canada as it is and not as the left desires.
• Getting Canada’s trade moving to Europe and Asia takes time. Is this likely to lead to a severe recession as this reset occurs?
• Can he change housing rules to get more land available to be built and work with municipalities to build more multi-family housing to provide homes for the growing population?
• His announcement of wanting to speed up approval of clean tech and other new energy (but not more oil & gas pipelines and definitely not through Quebec to meet European demand) will not be viable without Indigenous partners who become substantial owners? This anti-oil and gas view is inconsistent with his “build Canada into an energy superpower in both clean and conventional energy”.
• Can he do all he wants with his vast list of campaign promises and work to meet the 2% of GDP for military spending. Trump wants NATO members to move to 3%. I don’t see this as a priority for Carney so Trump may continue his rant against Canada’s free riding and rant about us becoming the 51st state if no trade deal is done that works for both countries. This will make a trade deal even harder.
• I expect more spending by Ottawa that crowds out the private sector. Federal deficits will grow and our national debt levels will rise. Consumers are reigning in spending as they fear the tariff impact on necessities. Canada may be following the US into recession.

The US Q1/25 data was negative (down 0.3% after rising 2.4% in Q4/24))and a lot of other indicators are showing weakness in the economy. Some of these items of note are:

• The ADP non-farm employment data showed an increase of only 62K new jobs in April down from 147K in March.
• UPS is laying off 20,000 workers as deliveries slow down and will shut dozens of facilities.
• US Consumer Confidence fell to a nearly five year low according to the Conference Board.
• Inflation is rising and came in at up 3.5% for Core PCE up from 2.6% in Q4/24. This inflation measure is one the Fed watches the most and this increase will keep the Fed from lowering rates at their May FOMC meeting. President Trump again needled (renewed criticism) Fed Chairman Powell at his rally yesterday near Detroit.
• Many companies are removing forward earnings guidance as they are unsure of the economy and the impact of the tariffs.
• An early tech reporter Super Micro reported very weak revenues and earnings and the stock is down 15% today to US$30.45 per share. In mid-February when tech stocks were peaking, the stock traded at US$66.44 per share.
• Starbucks reported misses on revenues and profits for its recent quarter and the stock is down today 7%, or US$5.88 to US$78.97 per share. The stock peaked at US$117.46 in early March.
• The Port of Los Angeles is seeing large declines in ships docking to unload.

US stocks are falling today due to the negative Q1/25 GDP data. The Dow Jones Industrials are down 1.2% or 500 points to 40,027 as I write this.  We still believe that the resolution of tariffs will have good and bad days and that the next challenge period (likely in May) could drive stock prices for the general stock market lower.

Our expected downside targets are:

• Dow Jones Industrials Index 35,000 (now 40,027)
• S&P 500  4,800 now (now 5,480)
• NASDAQ 13,000 (now 17,123)
• S&P/TSX Energy Index <225 (now 237)
• WTI  <US$56-58/b (now US$59.40/b)

As this decline progresses in the coming weeks we should see more capitulation from leveraged investors who get nasty margin calls. Intermarket pressure should take energy stocks down as well as the overvalued tech sector (AI and semiconductor stocks the most overvalued still) and provide energy investors with the next low risk BUY window. This should trigger a Table Pounding BUY signal during the second half of May and we will send out to SER subscribers another Action Alert with new BUY ideas. One market guru we keep an eye on, Mark Mobius has moved 95% of his portfolio to cash as he fears the uncertainty will have a large downside impact for stocks.

The Trump tariffs have still not been seen by customers as inventories of current stock need to be sold and then new imported items will carry the tariffs and become relatively expensive. This is now expected to hit stores in June. Stores such as auto dealerships are seeing good traffic now as buyers complete transactions at current prices before the tariff rise.

We are watching geopolitical issues more closely as the Iran nuclear talks are  progressing but with Iran adamant that they will keep a nuclear program. The US on the other hand is adamant that they must not get to be a nuclear weapons country. Some intelligence services have reported that Iran could have sufficient nuclear material for more than six nuclear intercontinental ballistic missiles in the coming weeks. These weapons can easily hit Israel, Middle East oil fields of competitors, European targets and even the continental USA. If diplomacy fails in the coming weeks then the US has moved sufficient military resources to the area (carrier fleets) to knock out all of Iran’s nuclear, military and energy infrastructure and cripple the despotic Ayatollah’s regime. The clock is ticking here and it is a ‘black swan’ that would drag stock markets down. Aggressive US sanctions to end Iran’s sale of crude to international buyers could be in place by Q3/25 and this would lift crude prices materially during Q4/25

One more area facing military escalation is around Taiwan. China has increased flights over the area at a greater pace and closer to Taiwan military bases. In addition, they are practicing with new landing craft and portable ports to unload soldiers and weapons for the capture of Taiwan and its smaller islands. The US has assets in the area (Guam) but not sufficient to stop China if they decide to invade. One new possibility is that China, with the world’s largest navy, could do a naval blockade of the country and severely impact Taiwan imports and exports.

Now a new problem has arisen between Pakistan and India that could escalate into a nasty land war. A terrorist attack in Kashmir has heightened the war drums. Three wars have been fought before in this area and millions have died. India’s Prime Minister Modi has given the green light to his armed forces to decide on the mode and targets in Pakistan. India has cut off water supplies to Pakistan that had been agreed to under long standing treaty obligations.

The war drums are beating and any miscalculation could set off some more regional wars. The US military is overstretched and its munition stocks are low from supporting Ukraine.  Europe, Japan, the UK and Australia all have the same empty munition stocks. China knows this and could take advantage of the trade war and turn it into a real war. There can be no real winners if a conflagration commences.

Russia has stated that they have recovered all of the land that Ukraine fought and captured in Russia. They succeeded with the help of North Korean and Chinese forces and weaponry. This may now provide a window for diplomacy to get a ceasefire and end the war. Putin, having gained back his land, may now be more willing to do a deal before President Trump gets angrier and places painful sanctions on Russia..

We have not yet seen in the current market decline a lot of disgorgement of assets. Investors, especially retail investors have been buying the dips. Historically at market bottoms they are in fear mode and selling. Panic climactic action is always seen at market bottoms and we expect this to occur in the coming weeks. Use this market mayhem to add to your favourite energy positions. If we are right that by year end Iran will lose production of >1.5 Mb/d and Venezuela > 500 Kb/d then there will be a significant shortage of crude production and prices will lift over US$80/b. Remember global inventories are low historically so even a 1 Mb/d shortfall can drive prices up materially.

For the energy sector we have bargain levels right now. We have already gotten all three of our BUY indicators saying BUY. The third one and the most reliable historically is the S&P Energy Bullish Percent Index. When this reaches over 90% it is  time to take profits and when under 10% a BUY signal. In March 2020 it fell to a Table pounding BUY level of 3.7%. In early April it plunged to 0% and stayed at that level for three days. The only other reading this low was in 2008 at the worst levels for the market averages and stocks during the financial crisis. Use upcoming weakness to BUY your favourite energy investments and consider moving to a full weighting; whatever that is for your personal portfolio needs. Check with your investment manager/advisor to make appropriate individual company decisions.

We are holding our Q2/25 quarterly webinar for subscribers tomorrow May 1st. The program starts at 7PM MDT and runs for 90 minutes. Subscribers can join the live presentation or listen in the archives thereafter. Given the market duress and the large stock price moves this will prove to be a very important one. I plan to go over what has occurred in the market place and the energy sector specifically and then go into many of the energy bargains available for purchase. Subscribers will have two Q&A sessions to ask about what they are interested in. Please become a subscriber to join this important market update. I will go over which energy stocks from the different groupings that are at bargain levels for you to consider. Down days should be used to add to favourite BUY ideas as many of the stocks we cover are trading at Table Pounding BUY levels. A year from now investors who take advantage of the bargains will be very pleased. 

For long term investors, find the ideas you want to own for this energy (and most commodities) super cycle and put your BUY orders below the market on plunging days to get great bargains for significant appreciation into the end of this decade.

If you want to see our Action Alert BUYS, sign up now for access to the Schachter Energy Research reports.

Josef Schachter May 1st, 2025

Posted In: Schachter's Eye On Energy

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