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Further conflict could push up oil prices and keep U.S. inflation high. (0:16) Netflix highlights this week’s earnings results. (2:57) Piper Sandler makes a triple stock pick. (3:30)
The following is an abridged transcript:
Geopolitics will be the top issue for markets this week after Iran launched missile and drone attacks on Israel.
Israeli stocks showed resilience with the Tel Aviv benchmark TA-35 rising 0.3%.
IBI chief economist Rafi Gozlan told the Times of Israel that “attacks from Iran are expected.” Tit for tat. “-This situation may develop into a wider regional escalation.”
U.S. President Joe Biden condemned the attacks but also told Israeli Prime Minister Benjamin Netanyahu that the United States would not support a counterattack, Axios reported.
Oil prices may be the most volatile, depending on how Israel and the West react.
UBS analyst Giovanni Staunovo said: “Oil prices are likely to surge at the open as this is the first time Iran has attacked Israel from its territory. How long the rebound lasts will also depend on Israel’s reaction.
Biden, who could face a backlash from voters if natural gas prices rise during an election year, said he called on the leaders of the Group of Seven major economies to meet on Sunday to formulate a diplomatic response to the Iranian attack.
Mark Zandi, chief economist at Moody’s Analytics, said: “Iran’s attack and Israel’s impending response pose a serious threat to the economy, mainly through rising oil prices. On Friday, oil prices were between $85 and $90 per barrel. Up to $5 of that is the risk premium. As attacks occur, the premium and price will rise.
“Iran produces more than 3 million barrels per day and has been growing steadily. Even if Iran’s production fell by hundreds of thousands of barrels, it would have a significant impact on the oil market’s fragile supply-demand balance. Saudi Arabia could easily fill the gap, but If the rise in oil prices continues for several weeks, gasoline prices will rise above $4 a gallon, which will exacerbate already stubborn inflation, push up inflation expectations, prevent the Federal Reserve from cutting interest rates, and thus hit the stock market.
Energy traders are likely to keep a close eye on tanker traffic through the Strait of Hormuz, through which about a fifth of the world’s oil supplies pass. Any attack on tankers could trigger a rise in oil prices.
Keep an eye on this week’s economic reports, where the market will get the latest data on retail sales, industrial production, new housing starts and existing home sales.
The Federal Reserve will release its latest Beige Book report, and many members will give speeches as investors continue to focus on when interest rates may be cut. Bank of America said it sees accelerating inflation this year making it challenging to cut interest rates before December. But Seeking Alpha analyst WYCO Researcher put forward the opposite view, that is, the Fed should raise interest rates at the next policy setting committee meeting.
Heading into the earnings calendar, reports from Goldman Sachs ( GS ) and Charles Schwab ( SCHW ) piled up on Monday.
UnitedHealth Group (UNH), Johnson & Johnson (JNJ), Bank of America (BAC), Morgan Stanley (MS), Rio Tinto (RIO) and United Airlines (UAL) are due to release reports on Tuesday.
On Wednesday, Abbott Laboratories (ABT), Kinder Morgan (KMI), Las Vegas Sands (LVS) and CSX (CSX) will all comment.
Netflix ( NFLX ) rose on Thursday, ahead of results from Procter & Gamble ( PG ) and American Express ( AXP ) on Friday.
For income investors
Williams-Sonoma (WSM) will go ex-dividend on Thursday, with the payout date being May 24. Colgate-Palmolive ( CL ), CVS ( CVS ) and Caterpillar ( CAT ) are set to go ex-dividend on Friday.
Study Corner on Wall Street
Piper Sandler analysts publish their monthly list of the most trusted stocks. Six stocks are selected, gathered from fundamental, macro and technical research analysis.
These stocks are rated in the top decile by Piper Sandler, with an Overweight rating and solid technicals.
These “Triple Stock Picks” are:
Align Technology (ALGN) has reversed a multi-year downward trend. For Permian Resources (PR), relative strength remains constructive. Reinsurance Group of America (RGA), “the number one life and health reinsurer by revenue.”
Simon Property Group (SPG) is “heading higher towards 2021 highs.” Tempur-Pedic Sealy International Inc. (TPX) is moving away from a two-year cup-and-handle pattern. Charles Schwab ( SCHW ) has reversed a two-year downward trend.
