Geopolitical risk and oil market impact (with Romaine Bostick, Katie Greifeld)

Yields up , short term, interviewee explicit

explicit

NDX

RUT

Oil cautious up , short term, interviewee implicit

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Barclays 9.0
Investment Bank $1600.00B
Venu Krishna 8.5

Geopolitical risk and oil market impact (with Romaine Bostick, Katie Greifeld)

wti

Venu states oil must be watched, the market is repricing cuts due to inflationary impact from oil, and that oil sector valuations are extended unless you expect oil to remain high. This implies upward pressure on oil prices in the short term due to conflict risk, but with caution due to stretched valuations.

yields

Already the rates market is repricing the cuts we assumed this year. The repricing of expected Fed cuts is directly linked to inflationary concerns stemming from higher oil prices due to the Middle East conflict.

11 calls

+2

no reliable edge (random outcomes)

9/17/2025 9:24:37 AM	medium term cautious down	20 days later	+0.61%	-0.30%
9/10/2025 11:46:49 AM	short term up	5 days later	+0.37%	+0.37%
9/9/2025 6:50:22 PM	short term cautious down	5 days later	+0.05%	-0.02%
9/8/2025 5:00:31 PM	short term cautious down	6 days later	-0.98%	+0.49%

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Historically, geopolitical issues haven't mattered longer-term for equities; we get knee-jerk reactions but things sort out. Is this time different?

Romaine Bostick
Venu Krishna

I think so. The risk is likely higher. This conflict has expanded beyond a narrow target. The risk that it spreads more affects the oil markets, affects the whole Middle East.

The existing regime in Iran is already very weak and it's relatively one-sided. This risk is not being priced by the market. The market is behaving as if this is going to be contained and quickly normalized.
We see a direct correlation: energy prices and yields drift higher, then we see a drop in stocks. What does that tell us?

Romaine Bostick
Venu Krishna

You have to watch oil right now. Already the rates market is repricing the cuts we assumed this year. The concern is about the inflationary impact.

Even looking at oil prices, the outperformance of the oil sector is a little extended. Fundamentally it's difficult to justify where oil prices are right now. The historical relationship is already factoring in a $100 oil price, which is a stretch when we are closer to $80. Valuations have become extended for the energy sector unless you think the strip reprises higher.
Where does this leave energy equities? The knee-jerk reaction was to buy energy stocks. Is that not the trade going forward?

Katie Greifeld
Venu Krishna

The challenge is the energy sector is outrunning fundamentals right now. It's also difficult to fight the tape because the sector has seen significant outflows but recently strong inflows.

The sector's weight has collapsed in the S&P to low levels (~3%). It's difficult to stick to a fundamental argument that says it's overshot, given the expectation oil remains high for a sustained period is possible if the conflict extends significantly.
Could this conflict throw a wrench in European stock outperformance, given Europe is more dependent on Middle East energy?

Katie Greifeld
Venu Krishna

Absolutely. That is the trade we recommended this week. The US is a net exporter of oil and relatively immune. It's exactly the opposite for Europe.

Not only has economic growth been weaker than the US, Europe is more dependent on oil and gas. They moved from dependency on Russia to greater dependency on the Middle East.

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