There’s only one ‘perfect asset’ to combat all the bad news that could come, says this strategist

There’s only one ‘perfect asset’ to combat all the bad news that could come, says this strategist

Ahead of that, stock futures are falling after Ford warned of high delivery costs, following in the footsteps of FedEx’s FDX,
+1.17%
earnings caution last week.

The dollar and cash have been one of the most popular havens for investors as they navigate recession risks with higher rates and higher inflation, in addition to a brutal war in Europe.

But our call of the day from Warren Pies, co-founder and strategist at 3Fourteen Research, sees energy as the to hedge against bad news in the pipeline. As he notes, after years of moving in opposite directions, stocks and bonds are collapsing.

“I think you just have a lot more potential returns going forward now that stocks and bonds are positively correlated. There are very few assets that can hedge the risk. And I think energy is the perfect asset,” Pies said in an interview. which was published last Friday with Real Vision.

And while the Fed may try to raise until it lowers energy prices — a key reason for rising inflation — it may fail because they “can’t affect oil’s main engine right now” — geopolitics, Pies said.

“If we continue to fully sanction Russian oil and really get out of the stalemate that’s going on right now and sticking with us, the world will be very short of oil,” and that will trigger “a tremendous recession,” he said. “Oil is going to do its own thing… That’s why you need to have oil exposure through energy in your portfolio.”

As for the types of oil companies, Pies recommends keeping it simple. “You don’t have to take any company-specific risk or beta here. Buy the whistleblowers, the big energy companies, liquid energy companies.

“If you want to be a little different or off the benchmark, we still like the big Canadian producers because they have more or less lower production and maintenance costs,” he said.

What he has suggested to clients is a 10% to 20% energy position as the sector represents 5% of the S&P 500 SPX,
+0.69%,
and then divest the rest of the portfolio to quality companies. “You’re just trying to get around the unprofitable tech stuff,” Pies said.

The strategist sees a similar setup to what happened after the last technology bubble between 2000 and 2005, when markets entered a new secular commodity bull market, and quality and energy lagged the market, especially the tech space. He sees that similar setup play out in the coming year.

Considering whether the stock market is looking at the bottom, Pies said that if the S&P 500 hits the 3,600 neighborhood he would go buy. “We did that last time. On June 16, after we’ve been bearish all year, we released a report to our clients where we said you’d be putting about 25% or 33% of your capital back into the market here. And if we got there again, we would take the same step.”

Worst case scenario, the S&P 500 drops to 3200? “We could be down another 10%, but if you can’t handle a 10% decline in this industry, you’re in the wrong direction,” Pies said.

Read: Stocks may face more pain as second half of September is historically ‘very bearish’

the markets

Stock futures ES00,
-0.77%

YM00,
-0.70%

NQ00,
-0.81%
fall, with bond yields TMUBMUSD02Y,
3.979%

TMUBMUSD10Y,
3.581%
rising and oil prices CL.1,
-0.78%
stable. The dollar DXY,
+0.36%
is higher and bitcoin BTCUSD,
-3.09%
hovering just above $19,000.

Listen to Ray Dalio at the Best New Ideas in Money Festival on September 21 and 22 in New York. The hedge fund pioneer has strong views on where the economy is headed.

the buzz

FordF,
+1.43%
falls in premarket after warning that inflation has pushed up supply costs by $1 billion, with parts shortages leaving more cars unfinished, though the automaker stuck to its annual forecasts.

SPAC ‘King’ Chamath Palihapitiya Is Outfitting Two Vehicles IPOD,
+0.20%

IPOF,
+0.10%
after failing to find target companies in time.

Home fitness bike maker Peloton PTON,
+1.85%
introduces a $3,195 rowing machine.

Apple AAPL,
+2.51%
increases the price of apps and in-app purchases in parts of Asia and any country that uses the euro. Shares are shrinking.

The Swedish Krona SEKUSD,
-1.00%
falls even after the Riksbank raises interest rates by a higher-than-expected 1%. In addition to the two-day Fed meeting starting Tuesday, the Bank of England, Swiss National Bank and Norges Bank will also meet this week.

New data showed construction was strong in August, but building permits were falling.

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The graph

“What would have been a major disaster a few months ago has so far proven manageable,” note strategists at DWS, citing high energy prices in Europe, particularly Germany, after Russia virtually halted gas exports.

They say that’s for two reasons: Germany is increasing gas storage faster than expected and consumption has dropped remarkably, as the graph below shows. While there may be a harsh winter or even three ahead, “we are now seeing how flexible Western industries are when faced with extraordinary pressures,” said Martin Moryson, Europe’s chief economist.

DWS

Read: Germany economy. minister says natural gas storage will be ’empty’ after winter

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m. Eastern:

ticker

Security name

TSLA,
+1.89%

Tesla

GME,
+1.12%

GameStop

AMC,
+2.23%

AMC entertainment

AAPL,
+2.51%

Apple

NIO,
+3.72%

NIO

BBB,
+0.12%

Bed Bath & More

MONKEY,
-4.69%

Preferred Shares AMC Entertainment

NVDA,
+1.39%

NVIDIA

AMZN,
+0.91%

Amazon.com

AVCT,
+28.11%

US Virtual Cloud Technologies

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-6.72%
COO accused of assault on the road outside a football game.

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