Why the energy shock from Russia’s Ukraine invasion will not wreck the stock market

Stock Market


Oil shocks aren’t what they used to be.

In 1990, the decision by Iraqi leader Saddam Hussein to invade Kuwait sent oil prices soaring, serving to further slow a US economy headed into recession. On Thursday, crude prices briefly jumped back above the $ 100-a-barrel threshold for the first time in more than seven years after Russia’s Vladimir Putin ordered an invasion of Ukraine.

It may be another case of history rhyming rather than repeating. The 1990 oil shock further slowed a US economy that had already tipped into recession and left stocks to flounder over the next six months before regaining their footing, noted Nancy Tengler, CEO and chief investment officer at Laffler Tengler Investments.

This time around, the economy does not appear in danger of recession, but growth is slowing and the Federal Reserve may have already made a policy mistake by waiting too long to raise interest rates in the face of persistent inflation, she said, in an interview.

As for oil prices, they’ve become less of a worry over time: “The good news in all of this that we use our cars less. Because first of all, we have electric vehicles, people use ride hailing, but they also are working from home to a good extent and the total impact of oil on GDP, and even individual pocketbooks, is lower than it used to be, ”she said.

Related: Ukraine invasion stokes stagflation worries because Russia is a ‘commodity superstore’

That means Tengler isn’t convinced by arguments that an oil or broader commodity shock is set to spark a bout of stagflation – the unpleasant combo of persistent inflation and sluggish, or stagnant, growth and high unemployment. And that brings us to the call of the day.

“We think this is a good time to be adding to holdings if you can, but not jumping in with both fists,” she said.

“We’re now for the first time in a period where technology capex is greater than 50%,” she said – a phenomenon that has a multiplier that will help companies deal with wage pressures.

“We are more of the camp that growth is slowing. For the foreseeable future this year you still want to have exposure to some of these growth at a reasonable price names, ”she said. “And then, when we get through the midcycle of the economy, which is where we think we are, we can think about becoming defensive.”

Meanwhile, war continues to rage in Ukraine, with Russian forces seen closing in on the capital Kyiv. Amid the carnage and human tragedy unleashed Thursday, financial markets witnessed some intense reversals, with US equities rebounding from an initial decline to end the day higher, led by rate-sensitive tech stocks. At the closing bell, the Dow Jones Industrial Average DJIA
was up 0.3%, while the S&P 500 SPX
erased a 2.6% fall to end 1.5% higher and the tech-heavy Nasdaq-100 NDX
reversed a 3.3% decline to end 3.4% higher.

The chart below from Bespoke Investment Group lays out all of big intraday turnabouts:

Bespoke Investment Group

The buzz

Earnings from Foot Locker FL
and Cinemark CNK
rolled in ahead of Friday’s opening bell.

Among Thursday’s after-hours highlights, cryptocurrency exchange platform Coinbase Global Inc. COIN
crushed Wall Street expectations for its fourth quarter but cast doubt on current-quarter prospects. And, dude, you’re getting a dividend: shares of computer maker Dell Technologies Inc. DELL
were headed lower in premarket action after earnings reported Thursday night fell short of Wall Street expectations, while the company’s board initiated a dividend, starting at 33 cents a share for the quarter.

And set some reading time aside this weekend for Warren Buffett’s annual investor letter, which is expected to accompany Berkshire Hathaway Inc’s BRK

BRK
annual report on Saturday.

A heavy lineup of data includes personal and consumer spending, the Fed’s favored core personal-consumption expenditures price index and durable goods orders ahead of the open. The University of Michigan consumer sentiment index and pending-home sales are due later.

The markets

Uncredited

US stock futures ES00

YM00

NQ00
were edging slightly higher after Thursday’s big bounce, with Treasury yields BX: TMUBMUSD10Y
and oil prices CL00

BRN00
back on the rise, while gold GC00
lost ground. Elsewhere, Asian markets mostly gained ground and European stocks XX: SXXP
bounced higher.

The tickers

These were the top tickers on MarketWatch early Friday:

Ticker

Security name

Tesla Inc.

GME

GameStop Corp.

AMC

AMC Entertainment Holdings

AAPL

Apple Inc.

Random reads

‘Hard-partying bands are the outliers now’: how rock’n’roll broke up with booze and drugs

AI outraces human champs at the videogame Gran Turismo

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