Oil prices ‘kingpin’ of markets as Russia wages war on Ukraine, says CIO Bob Doll

According to Bob Doll, Chief Investment Officer of Crossmark Global Investments, for stock market investors, much may hinge on oil prices as the Russian-Ukrainian war drags on.

“I think oil prices are the linchpin and the link to where the markets are heading, where inflation is heading and how people should be positioned,” Doll said in a Thursday phone interview. . “That’s the big question.”

For now, Doll, who previously served as chief equity strategist at Nuveen and BlackRock, is sticking to his forecast for the S&P 500 to end the year at 4,500. seemed bearish to some, said Doll, who explained that he had worried about stretched stock valuations amid high inflation and expectations of rate hikes this year.

Doll said he still felt “comfortable” with his U.S. stock market forecast, assuming the war remains confined to Ukraine and the oil price spike doesn’t see “a big spike.” According to him, “$100 oil will not create a recession” this year, but crude prices “will have a lot to say about” whether the United States finds itself in a stagflationary environment.

West Texas Intermediate Crude for delivery in April CLJ22,
+2.73%
rose nearly 8.4% on Thursday to settle at $102.98 a barrel as prices surged during Russia’s invasion of Ukraine. Crude had stood at $123.70 on March 8 to mark the highest level since August 1, 2008, according to Dow Jones Market Data.

To see: Oil suffers ‘dramatic’ crash, enters bear market just 5 days after stabilizing at nearly 14-year highs

US stock indices rose sharply 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. Still, the stock market has been volatile this year, with the S&P 500 down 7.4% through Thursday, after ending 2021 at around 4,766, according to FactSet data.

Lately, Doll said he reduces energy exposure on “important days” and increases finances on “important days”. The energy sector of the S&P 500 SP500EW.10,
+4.65%
has jumped about 32% this year, far outpacing the broader stock market index.

“My clients like it when I take profit once in a while,” Doll said. “I don’t sell energy, I just reduce.”

Doll said he tends to favor value stocks over growth stocks in the current environment, but not as much as earlier this year due to the already significant outperformance of value stocks. “I guess half of the value versus growth advantage has been taken out of the market,” he said.

The Russell 1000 RLV Value Index,
+1.20%
is down more than 2% since the start of the year, better than the 13% drop in the Russell 1000 Growth Index RLG,
+1.42%,
Display of FactSet data.

Doll’s bet on buying financial stocks in recent days is tied to the idea that banks should do well in a “decent economy” and rising interest rate environment. “It would help if the yield curve steepened a bit for financials, but higher rates help,” he said.

Read: Treasury yield curve at risk of inverting relatively soon after start of Fed rate hike cycle, Deutsche Bank warns

The Fed announced on Wednesday that it was raising its benchmark interest rate by 25 basis points, from near zero, to combat soaring inflation and that it would continue on the path of rate hikes. This year.

However, Doll does not consider the Fed to be so hawkish.

“What the Fed is saying to the market is ‘we’re way behind the curve and we’re going to take our time to catch up,'” Doll said, referring to what he took away from the bank’s policy decision. power plant announced Wednesday after the conclusion of its two-day meeting.

Fed officials expect the central bank to raise its benchmark rate six more times this year, with a median forecast of a 2.8% rate hike in 2023. Meanwhile, the index of consumer prices measured US inflation at a 40-year high of 7.9. %.

Read: What’s next for stocks after Fed rate hike sends markets into a rat race

The Fed didn’t deliver big surprises to 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 was worsening inflation in the United States while hurting its economic growth.

While the United States has banned Russian oil because of its attack on Ukraine, such a move would be more difficult for Europe because of its dependence on energy supplies from Russia, Doll said. He said Europe would risk sliding into a recession if it banned oil imports from Russia, which is “a high price to pay”.

Meanwhile, investors bought on “rumors” of potential progress toward resolving the war in Ukraine, then sold as “cold water” is poured 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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Felix J. Dixon