LIVE MARKETS-Wells Fargo strategist favors rebalancing over gold, oil bets amid Iran war
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WELLS FARGO STRATEGIST FAVORS REBALANCING OVER GOLD, OIL BETS AMID IRAN WAR
Despite the global turmoil in markets due to the U.S.-Israeli war on Iran, U.S. stocks have held up better than those in Europe and Asia on expectations that the repercussions on the economy will be less severe. However, analysts have underscored that investors are yet to fully consider the effects of the war on the global economy.
Meanwhile, as Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute (WFII), sees it, market movements continue to support energy stocks and commodities, the U.S. dollar over gold, and U.S. large-cap stocks over international equities.
Fixed income returns have taken a hit on inflation concerns.
"The main risk is that longer engagement damages the global economy and undermines financial markets. Effective hedging may remain challenging and expensive. We favor rebalancing in a diversified portfolio," writes Christopher in a note out on Monday.
Christopher says that gold may not be a good hedge for a war that affects oil prices and inflation. He also believes that buying call options on oil may be too risky a proposition as after the shooting stops, a sharp reversal in oil is likely to quickly develop.
Instead, he favors a rebalancing approach which involves selling assets whose prices appear to have outstripped their fundamentals and reallocating to cheaper assets whose fundamentals appear solid.
WFII's base case foresees a limited, intense war with Iran. Energy stocks and crude prices have advanced, but Christopher expects the price surge to ultimately reverse and excess supply to drive global oil prices down.
"More attractive sectors in our guidance include Utilities, Industrials, and Financials. At a higher level, we would add to equities before fixed income and within equities, favor U.S. Large- and Mid-Cap Equities over U.S. Small-Cap Equities and international markets," Christopher writes.
(Terence Gabriel)
EARLIER ON LIVE MARKETS:
OIL SHOCKS HIT US ECONOMY LESS HARD, BUT INFLATION RISK LINGERS CLICK HERE
ENERGY, FINANCIAL STOCKS LIFT WALL STREET AS FED MEETING LOOMS CLICK HERE
LEVERAGED ETF FLOWS SIGNAL TUG-OF-WAR BETWEEN NASDAQ BULLS AND BEARS CLICK HERE
IRAN WAR A MANAGEABLE SHOCK, SAY SOCIETE GENERALE CLICK HERE
WAR DENTS INVESTOR SENTIMENT TOWARDS EUROPEAN STOCKS- BOFA SURVEY CLICK HERE
EUROPEAN STOCKS PRETTY CALM CLICK HERE
EUROPE BEFORE THE BELL: OIL UP, SHARES DOWN CLICK HERE
MORNING BID: CENTRAL BANKS GIRD FOR OIL SHOCKS AS RBA VOTES 5-4 TO HIKE CLICK HERE
