Why Wall Street can’t agree on where stocks are heading

Investors are still reeling from a roller coaster ride — attempting to price in a bewildering array of sweeping sanctions against Russian entities with all its attendant knock-on effects. There’s a growing divide on Wall Street, with some saying that the worst is over and investors should buy the dip while others are saying investors should be cautious and concerned about lingering tail risks.

Dominic Wilson of Goldman Sachs’ global markets strategy team is wary of both surging oil prices and a Federal Reserve that might not dial back its hawkishness as much as markets are currently pricing in, according to a new note.

Commodities surged again on Tuesday, led by WTI crude oil (CL=F), which surged to its highest level since May 2020. This is despite the fact that Russian energy supplies are currently exempt from sanctions — with little talk about that changing.

Crude oil markets also completely discounted news that the International Energy Agency (IEA) would lead a coordinated global release of 60 million barrels of crude. The threat of dumping all that oil into the market didn’t sway prices, which only continued their skyward trajectory.

In response to the oil price action following the IEA news and the upcoming oil release Tuesday, Bob Iaccino, Path Trading Partners co-founder and chief market strategist, told Yahoo Finance Live, that “traders, and especially hedgers, tend to think wow — they’re doing something they don’t often do. In the case of the IEA, it’s only been done three other times in their history. Traders will start to think — well what else do they know? Is this going to get a lot worse than we think? And they’ll tend to get out of short positions and tend to even put on long positions — and that’s what I think we saw here.”

Wilson wrote that market participants are still underestimating the tightness in global oil supplies. He argues that the extra price investors are paying now for futures contracts over the expected spot oil prices when the futures contracts mature — the so-called risk premium — is still too low and should probably…


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