The chief investment strategist at Charles Schwab warns that oil prices could suddenly rise and send stock prices tumbling.
In a new interview on Bloomberg Television, Liz Ann Sonders say that if the US-Iran conflict keeps the Strait of Hormuz closed for much longer, oil prices could quickly reach $150 per barrel.
“I think it was last week that leaders within both Chevron and Exxon came out and said that given the low inventories, without a relatively imminent opening of the Strait of Hormuz and getting the oil flowing again, they were calling numbers as high as $150 within a few weeks. We’re on the brink of what could potentially be a more significant peak.
“We are still in an area of inverse correlation between oil prices and the stock market… but there have been so many fits and starts of an upcoming deal being announced, and then we don’t get any more… so time is not on the side of the economic bulls when it comes to the oil price channel.”
Sonders also warns that stocks could undergo deep corrections as investors rotate their funds in response to market conditions similar to those experienced in the first quarter of the year.
“The S&P at the index level did not have a maximum drawdown at a correction level this year. The weakness in February and March was 9%… But if you look member by member in the S&P 500 and look at their individual maximum drawdowns and average that, it is a negative 22%. In the case of the Nasdaq, the average maximum drawdown of members is negative 38%. You could continue to say whether it is a valuation surplus correction or a correction. The sentiment surplus finds takes place through a process of rotation, as opposed to a correction that takes place all at once at the index level.”
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