How higher oil prices could impact your wallet

Why one strategist sees higher oil as a price shock and what it means for your money.

Transcript

00:00What about oil prices? Still sharply higher for the month of June.

00:03What impact could that have on the inflation story?

00:06Yeah, so I don't view oil prices as being early cycle inflation.

00:11I tend to view it as being later cycle, hurt the consumer.

00:15So I would expect all other goods to not have the same type of demand

00:19if we're spending more at the pump.

00:22So I wouldn't view it as inflation.

00:24I would view it as a price shock.

00:26Again, talk about war or drought or policies that cause these price shocks.

00:31I would view it as being anti-growth rather than pro-inflation.

00:36Have the latest geopolitical events changed the way you look at energy stocks

00:41or even defense names as a way to hedge against some of the risk?

00:46Yeah, I think so.

00:46I mean, you would want to own commodities in your portfolio

00:50for events like these certainly well-positioned energy majors.

00:54You know, defense stocks were likely to do well anyway,

00:58given what we've heard out of the Europeans,

01:00what we've heard out of the Germans in terms of the defense spending

01:03and the infrastructure investment that we're expecting over there.

01:06So they're well-positioned.

01:08And in a world of geopolitical or trade conflict,

01:11I think defense and aerospace can do well in that environment.

01:14But yeah, I mean, the nice thing about commodities

01:17is you don't need to own a lot in the portfolio for them to have the intended effect.

01:22So investors tend to be, I want to jump into commodities when there's conflict.

01:28If you want to have a persistent, call it 5%, 10% position in commodities,

01:33it can help smooth the volatility of a portfolio over a longer term period

01:37because we know these types of things unfortunately always come up.

01:41You're not saying jump in right now as a way to hedge.

01:44I'm not saying jump in right now because I would say you'd want to own commodities as a hedge,

01:48but you don't want to jump in to think that, you know, oil's now going to $100 a barrel.

01:54I mean, you could end up fairly quickly with some negotiated ceasefire.

02:00And the other thing you have is, again, leading indicators in the U.S. pointing lower.

02:04And the U.S. is pretty awash in oil, right?

02:06All-time highs, 13.5 million barrels of oil being produced per day.

02:10So, no, I wouldn't view it as this is the next great investment opportunity.

02:17I would view it as, to your point, a hedge in the portfolio.