The two-week Iran war ceasefire, which was dealt a blow with the closure of the Strait of Hormuz Wednesday, is nonetheless sending stocks, gold and Bitcoin higher. On the flip side, the peace deal, however temporary, is pushing oil, volatility (VIX) and the 10-year Treasury yield lower.
So what do advisors see happening tomorrow, the day after that, and so on?
Despite today’s steep drop in the price of crude, Todd Rabold, investment management partner with Callan Family Office, expects energy prices to remain higher due to a geopolitical risk premium that will take some time to subside.
“If tolls are implemented in the Strait of Hormuz, that will be passed along in the cost of oil. Higher energy prices have downstream implications for inflation, something we are watching closely,” Rabold said.
Rabold says he will also be keeping a close eye on first-quarter earnings reports for signs of weakness or companies talking down forecasts, especially since corporate America has been performing exceptionally well the past 6 quarters.
In Rabold’s view, today’s market selloff has made stock prices more reasonable, specifically in the technology sector.
“Valuations in US small cap remain very attractive as do emerging markets. These sell-offs can create buying opportunities, harvesting tax losses and an environment to reposition portfolios for the future,” Rabold said.
Meanwhile, Ed Cofrancesco, CEO of International Assets Advisory, says the market has consistently overreacted – in both directions - since the outset of hostilities. In his opinion, the response to the ceasefire is the same kind of overreaction.
“This is a ceasefire, which is good, but do we know enough to say that this is the beginning of the end for this conflict? No. But this is a market that is going to swing widely on any news, good or bad. The truth is, though, that the news isn't always trustworthy. In war, you never telegraph your intentions to the world, so you have to be prepared for the unexpected,” Confrancesco said.
Added Cofrancesco: “From a sector perspective, we always thought that the energy sector was in the best position to benefit from the Iran conflict, and we still believe that. U.S. oil companies in particular are going to be the biggest beneficiaries as the region stabilizes and they are going to be in good shape through the rest of this year.”
Finally, Mark Luschini, chief investment strategist at Janney Montgomery Scott, says he expected a potential resolution to the conflict in any form would lead to a plunge in oil prices and a sharp rally in stock prices. This is why he advocated against a change in portfolio discipline even as the stock market was under pressure.
“Our base case has been, and remains, that an outcome that would lead to a detente was more likely than an ongoing and kinetic war lasting months, causing oil prices to rise significantly and undermining economy growth both here and abroad,” Luschini said.
Stressed Luschini: “This ceasefire is encouraging, but it leaves conditions somewhat tentative, and uncertainty elevated, as to whether it holds. It does, however, reinforce our advocacy for staying the course while we monitor the evolution of activity during the next several weeks.”
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