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Further conflict could boost oil prices and keep U.S. inflation high. (0:16) Netflix highlights earnings this week. (2:57) Piper Sandler picks Triple Select Stocks. (3:30)
The following is an abridged transcript:
Geopolitics will be top of mind for the markets this week following the missile and drone attack by Iran on Israel.
Stocks in Israel showed resilience The Tel Aviv benchmark TA-35 rose +0.3%.
An “attack from Iran was anticipated,” IBI chief economist Rafi Gozlan told The Times of Israel. “Investors are now in a wait-and-see position to see how Israel will respond to the Iranian attack and whether it stays a tit-for-tat situation or develops into a wider regional escalation.”
U.S President Joe Biden condemned the attacks, but also told Israel Prime Minister Benjamin Netanyahu that the U.S. would not support a counterattack, according to Axios.
Oil prices are likely to be the most volatile, depending on how Israel and the West respond.
UBS analyst Giovanni Staunovo said: “Oil prices might spike at the opening, as this is the first time Iran struck Israel from its territory. How long any bounce will last will also depend on the Israeli response.”
Biden, facing potential voter backlash if gas prices rise during an election year, said he called for a meeting among leaders of the Group of Seven major economies on Sunday to form a diplomatic response to the Iranian attack.
Mark Zandi, chief economist at Moody’s Analytics says: “Iran’s attack and Israel’s pending response poses a serious threat to the economy, mostly through oil prices Last Friday, oil was $85-$90 per barrel, of which as much as $5 was a risk premium in anticipation of the attack. With the attack, the premium and prices will rise more.”
“Iran produces 3 million+ barrels a days, which has been steadily rising. Even if Iranian production falls a few hundred thousand barrels this will have a big impact on the tenuous supply/demand balance in oil markets. The Saudis could easily fill the void, but would they? If the higher oil prices are sustained for even a few weeks, this will push up gasoline prices to over $4 per gallon. This will add to already stubborn inflation, push up inflation expectations, forestall Fed rate cuts, hit the stock market hard, and weigh heavily on the economy.”
Energy traders likely will scrutinize oil-tanker traffic through the Strait of Hormuz, passageway for about a fifth of global oil supplies. Any attacks on tankers may trigger jumps on oil prices.
Looking to economic reports this week, the markets will get updates on retail sales, industrial production, housing starts, and existing home sales.
The Federal Reserve will release the latest Beige Book report and many members will be out on the speaking circuit as investors stay laser-focused on when interest rates may be cut. Bank of America said it thinks the acceleration of inflation this year makes a cut prior to December challenging. But Seeking Alpha analyst WYCO Researcher argued the contrarian view that the Federal Reserve should raise rates at the next meeting of the policymaking committee.
Moving to the earnings calendar, reports ramp up with Goldman Sachs (GS) and Charles Schwab (SCHW) on Monday.
Tuesday sees UnitedHealth (UNH), Johnson & Johnson (JNJ), Bank of America (BAC), Morgan Stanley (MS), Rio Tinto (RIO), and United Airlines (UAL) reporting.
On Wednesday Abbott Labs (ABT), Kinder Morgan (KMI), Las Vegas Sands (LVS) and CSX (CSX) weigh in.
Netflix (NFLX) is up Thursday and Procter & Gamble (PG) and American Express (AXP) issue results Friday.
For income investors
Williams-Sonoma (WSM) goes ex-dividend on Thursday with a May 24 payout date. Colgate Palmolive (CL), CVS (CVS) and Caterpillar (CAT) go ex-dividend on Friday.
And in the Wall Street Research Corner
Piper Sandler analysts published their monthly highest-conviction stock list. Six stocks are featured, gathered from fundamental, macro and technical research analysis.
The stocks are top decile rated by Piper Sandler, with Overweight ratings and solid technicals.
These “Triple Select Stocks” are:
Align Technology (ALGN), which has reversed a multi-year downtrend. Permian Resources (PR), where relative strength remains constructive. Reinsurance Group of America (RGA), the “number one life and health reinsurer by revenues.”
Simon Property Group (SPG), which is “trending higher towards its 2021 high.” Tempur Sealy International (TPX), which is getting out of a two-year cup and handle pattern. And Charles Schwab (SCHW), which has reversed from a two-year downtrend.
Read the full article here
