Market strategist on buying the dip: ‘Be patient as opposed to early’
UBS Head of Equity Derivatives Research Stuart Kaiser joins Yahoo Finance Live to discuss whether investors should buy the dip amid the Russia-Ukraine war.
Video Transcript
- To buy the dip in the markets or not to buy. That is the question on the mind of most investors as they see stocks slammed on oil price spike news. Bring in UBS head of equities derivatives research Stuart Kaiser for more on this. Stuart, always nice to get some time with you. I'll put that question to you. Buy? Are you buying the dip here? Why or why not?
STUART KAISER: Hey, good morning, Brian. We are not. We are we're definitely not buyers of the dip at this point. I mean, just for some perspective, we were worried about the first half of this year before the Russia-Ukraine conflict even started just based on the Fed and the growth and inflation dynamics. So the geopolitical stuff only reinforces that.
And then just from a data perspective, if you look at these buybacks-- excuse me-- buy the dip events kind of over the last 70 or 80 years, you're typically rewarded for being cautious and patient. If you try to buy the dip and you do it too early, it really does have a negative impact on your portfolio. So from our perspective, the tail risks in Europe are just too extreme to kind of step in front of. And the history suggests you should really be patient as opposed to early in terms of buying the dip.
- As you said, Stuart, in your note, better to be late than early, as you were just talking about. How do you know when-- I mean, timing the market, as we have said time and time again, is a difficult thing to do. But what signs are you looking for that even if you want to be late and want to be cautious, what signs would you look for that it's time?
STUART KAISER: Yeah. I think it's a great, great question. Good morning, Julie. From my perspective, pre-Ukraine, I would have said what we're looking for is some actual evidence that inflation is kind of know peaked in the US and that the Fed pricing was pretty full. Now you've kind of introduced this sort of highly uncertain event coming out of the Ukraine. And it'd be a fool's errand for me I think to try to handicap what we're going to see.
But, clearly, you'd like to see something-- and I don't know what that'll look like-- that would at least take some of the worst tail risks off the table in terms of what's going on in Europe. So that's geopolitical. It's an event risk that is very hard to handicap. But I think anything that would give you some reasonable amount of confidence that this wasn't going to escalate into something more broad across Europe would be hugely positive. And then from kind of a more fundamentals perspective, it's give me some clue that inflation in the US has peaked and that the Fed-- some pressure off the Fed in terms of how aggressively they're going to have to hike.
- Stuart, do you-- look, last night, I saw an alert on our site about Brent Crude nearing $140 a barrel. Now, that has since settled down. But at what point does the market-- at what point is there a major repricing in the market for the inflation that is happening in really throughout the energy space, commodities, you name it. We just have not seen it. And we're not seeing it here in the pre-market.
STUART KAISER: It's a great question. I think the oil price shock that we've experienced obviously has two impacts. One, is what does it do to the inflation outlook? And two, does it get to the level that it starts to be demand destructive for consumer? So look, I think some folks across the street, and our economists included, have started to kind of tweak up their inflation forecasts, both the level it might peak, and potentially peaking a little bit further out in the future. We've made small negative revisions to our GDP outlook.
And I imagine you'll see that, especially in Europe, over the coming weeks and months across the street and across policymakers, really trying to understand what this high price of oil has done, not only to inflation, but what it's going to do to demand as well. So it's a two-pronged issue. I think the inflation part just means you probably peak a little higher and a little later. The growth part I think is highly uncertain just because you've seen almost like a 50% surge in oil over the course of the last few months. So that is clearly going to impact consumer spending as well.
And to your point, Brian, why haven't we seen the estimates move, I think just because it happened so quickly. And on an intraday basis, you might have oil trade in a $10 range. And as a strategist or economist, it's really hard to know where to put the pin in the ground there in terms of setting your assumption for oil going forward. If I were to highlight one thing that's happened that I think is important is that the medium to longer dated oil futures are starting to rise a bit. Those are up into the $90 range.
So I think for an energy company, that tends to sell a little bit further out. I think that's important. In terms of stimulating supply from US producers, I think it's important that the futures curve is moved. So I think that's one thing that's out there that bears watching. At the beginning, this was very much like one to three month oil. And we've started to see the curve move a little bit as well, which I think is a key aspect.
- Well, it's terrible news for motorists, like all of us here. But, Stuart, I mean, do you expect-- staying on that, do you expect an economic shock here coming soon?
STUART KAISER: Well, look, I think US versus Europe, I'd probably give you a different answer there. I think in the US, historically speaking, oil price shocks have almost balanced themselves out a bit. To your point, it's a big hit to consumer spending and the consumer wallet. But it's also a big uplift to the oil production and export business here in the US. And we are a net exporter of energy products. So you hope that the aggregate hit on the US economy isn't as large as you might expect because of that balancing mechanism.
Unfortunately, for the average consumer, especially if you don't work in the energy industry, it feels a lot more negative. The impact on the European economy I think could be a little more steep just because they do import a lot of oil from Russia. And they've also tried to green their energy supply, which makes them probably a little more susceptible to this move. So again, hopefully in the US, the impact is negative, but maybe not as large as you might expect. And that's a mixed shift. Consumers hurt, and then maybe the industrial economy helped a little bit through higher oil prices.
- I'm lucky. My drive to work is very short, Stuart. I'm in my kitchen still. We'll leave it there. UBS head of equity derivatives research Stuart Kaiser. Always good to see you.
