Wall Street strategists, bullish before Russia’s military buildup near Ukraine’s border, are mostly sticking to their view that stock markets can weather Europe’s brewing security crisis. For now at least.
After a week of volatility, they say loose financial conditions and growing corporate profits will anchor large-cap indexes amid deteriorating relations between Moscow and Western powers. Corporate balance sheets, meanwhile, will prove broadly resilient to higher energy prices and disrupted supplies.
In this view, the Federal Reserve, not geopolitics, remains the principal threat, while outsize hedging activity gives portfolio managers some firepower to ride through the crisis.
U.S. officials said additional American sanctions against Russia are coming after President Joe Biden issued an executive order prohibiting U.S. investment, trade, and financing to separatist regions of Ukraine.
The S&P 500 and the Nasdaq 100 fell Tuesday, while the Stoxx 600 Index pared losses to trade flat.
Easing expectations on the pace of Fed rate hikes may buoy risk sentiment, according to Craig Johnson, chief market technician at Piper Sandler & Co. Traders are now pricing in six 25-basis-point hikes for the full year down from earlier expectations for seven increases in 2022.
Here are five strategists on why stock markets are likely to weather the geopolitical storm.
‘Oversold’
Dennis DeBusschere, founder of 22V Research
Yearend S&P 500 target: 5,040
“Financial conditions have tightened but remain historically easy, earnings growth continues to offset multiple contraction, and just about every major market is oversold.”
“We remain long thematic baskets like pricing power, companies that benefit from higher real rates and improving supply chains. An escalation in Russia/Ukraine could lead to a much quicker tightening of financial conditions and limit the increase in bond yields.”
‘Short-Term Disruptions’
Chris Harvey, head of equity strategy at Wells Fargo
Yearend S&P 500 target: 4,715
“We think geopolitical stress surrounding Russia and Ukraine will add volatility and some near term down-side to risk markets including equities. We believe Fed action will be much more influential longer-term. Geopolitical may cause some short term disruptions but changes in monetary policy will be longer lasting and more pervasive.”