Oil prices are the “hub” for markets as Russia declares war on Ukraine, says IOC Bob Doll

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Oil prices are the “hub” for markets as Russia declares war on Ukraine, says IOC Bob Doll

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According to Bob Doll, chief investment officer at Crossmark Global Investments, for stock market investors, a lot could hinge on oil prices as the Russia-Ukraine war persists.

“Oil prices, I think, are the hub and link to where the markets are going, where inflation is going and how people should be positioned,” Doll said in a telephone interview Thursday. “This is the big question.”

For now, Doll, who previously served as chief equity strategist at Nuveen and BlackRock, is sticking to his predictions for the S&P 500 to end the year at 4,500. In early 2022, that forecast looked bearish to some, said Doll, who explained that he was concerned about stretched equity valuations against the backdrop of high inflation and expectations of a rate hike this year.

Doll said he still feels “comfortable” with his predictions on the US stock market, assuming the war remains contained in Ukraine and the surge in oil prices does not see “a big spike”. According to him, “$ 100 worth of oil won’t create a recession” this year, but crude oil prices “have a lot to say” if the US ends up in a stagflationary environment.

West Texas Intermediate Crude for April CLJ22 Delivery,
+ 9.03%
it rose nearly 8.4% Thursday to stand at $ 102.98 a barrel, with prices soaring during the Russian invasion of Ukraine. Crude Oil had stopped at $ 123.70 on March 8 to mark the highest milestone since August. 1, 2008, according to Dow Jones Market Data.

See: Oil Takes a ‘Spectacular’ Collapse, Entering the Bear Market Just 5 Days After Settling to Almost 14-Year Highs

US equity benchmarks rose significantly on Thursday, with the S&P 500 SPX,
+ 1.23%
climbing 1.2% to close at 4,411.67 for its third consecutive daily gain. However, the stock market has been volatile this year, with the S&P 500 down 7.4% through Thursday, after closing 2021 at around 4,766, according to FactSet data.

Lately, Doll said he reduced his energy exposure on “big days” and increased financials on “big days”. The energy sector of the S&P 500 SP500EW.10,
+ 4.65%
it has risen about 32% this year, far outperforming the broader stock market index.

“My clients like it when I make a profit from time to time,” Doll said. “I’m not running out of energy, I’m just trimming.”

Doll said he tends to favor value stocks over growth stocks in the current environment, albeit not as much as earlier this year due to the already large outperformance of value stocks. “My guess is half the value vs. the growth advantage has been taken off the market, “she said.

The Russell 1000 Value Index RLV,
+ 1.20%
is down more than 2% so far this year, faring better than the 13% decline in the Russell 1000 Growth Index RLG,
+ 1.42%,
FactSet data show.

Doll’s gamble on buying financial stocks in the last few days of downturn is linked to the idea that banks should do well in a “decent economy” and in an environment of rising interest rates. “It would help if the yield curve sloped slightly for financials, but higher rates help,” she said.

To read: The Treasury yield curve is likely to reverse relatively soon after the start of the Fed rate hike cycle, Deutsche Bank warns

The Fed announced Wednesday that it would raise the benchmark interest rate by 25 basis points, from near zero, to combat rising inflation and will continue on a path of rate hikes this year.

Doll doesn’t see the Fed as a hawk, though.

“What the Fed is saying to the market is, ‘We are very much around the curve and we will take our time to catch up,'” Doll said, referring to her central bank policy decision which was announced Wednesday after the conclusion of his two-day meeting.

Fed officials predict that the central bank will raise its key rate six more times this year, with a median projection for rates to rise to 2.8% in 2023. Meanwhile, the consumer price index has measured US inflation at a maximum of 40 years of 7.9%.

To read: What are the outlooks for equities after the Fed rate hike sent markets on a rampage

The Fed hasn’t held any major surprises for the market, but it’s a confusing time for investors due to the unpredictability of the war in Ukraine, according to Doll. He said the war increases inflation in the United States while weighing on its economic growth.

While the US has banned Russian oil due to its attack on Ukraine, such a move would be more difficult for Europe due to its reliance on energy supplies from Russia, Doll said. You said Europe would risk falling into a recession if it banned Russian oil imports, which is “a high price to pay”.

Meanwhile, investors bought on “rumors” of potential progress towards resolving the war in Ukraine, and then sold “cold water” on those hopes, according to Doll.

“The uncertainty is so high,” he said. “It’s really hard to know where the consensus is” in the markets.

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