A Matter Of Interest

Today, we examine a plausible and concerning scenario for the stock market: The war in the Middle East drives the price of oil above $100 a barrel. That would trigger expectations of resurgent inflation à la the 1970s, nix expectations of Fed easing this year, weigh on stocks, and push the 10-year Treasury bond yield back up to 5.00%. That’s not our outlook; we assign it only 20% odds versus 60% for our bullish “Roaring 2020s” scenario. But the prospect of $100 oil is concerning enough that we recommend overweighting the S&P 500 Energy sector and increasing positions in precious metals.