Could Rising Oil Prices Reignite Inflation?

It's All Talk on a Tuesday morning. I'm Kevin D. It's coming to you from the Golden Tower of the Fisher Building. So gas prices back above $4 a gallon nationally. Boo! Oil is climbed above $82 a barrel, and the pain may not stop at the pump. This renewed fighting involving Iran is pushing energy markets higher, and we know that higher gasoline and diesel prices can raise the cost of groceries, shipping, airline travel, and nearly everything. consumers buy. It also puts the Fed reserve in a difficult position. The Fed has been looking for evidence that inflation is under control, but a new energy price shock could delay interest rate cuts and force officials to choose between fighting inflation and supporting the slowing economy. So. How high could gas prices go? How long could they last? We don't know. Is there anything the White House or the Federal Reserve can realistically do about it? Let's bring in our good friend, Dave Sowerby, managing director, portfolio manager at Ancora Bloomfield Hills. Good morning. How are you? Terrific. Great to be with you. Yeah, I appreciate you being here. The markets overall have been pretty good this year. Give it a solid B, if I could wish for anything, it would be more breath, more stocks rowing a boat, but nevertheless, good index, good returns this year. Yeah. What's going on with, what's going on with gold and silver? Oh, gold's about 25% lower than its March highs. Throw Bitcoin, 50% below its all-time highs. That's also a sign that there's more certainty on the economy and profits and fewer people running to things like gold, which tends to be a hedge against uncertainty and a hedge against inflation. So we're seeing these, you know, the situation in Iran and we'll see a headline one day that says, oh, you know, negotiations are planned and all of a sudden, you know, gas prices will drop. And then we see, oh, never mind. They're fighting again. How does this impact the stock market? How does this impact investors? Does it at all? Well, we know markets don't like uncertainty. So longer term markets are driven off of healthy corporate profits, which are certainly the case this year. But periods of uncertainty when oil is higher and gas prices are higher, that creates near-term uncertainty in the market. And the market has no appetite for it. But for the time being, they're looking beyond this high oil and high gas saying what's pulling in a better direction in a tug of war. is a 22% gain in corporate profits expected this year. So that uncertainty that you talk about, I remember talking about it way back, I don't know, over three years ago when we talked about Ukraine and Russia being involved in a war. And Donald Trump was going to come in and fix that in a day. That thing is still going on. Did the markets just forget about that war and it's just focused on Iran now? Or does it still play some sort of role?

Well, when you go back to the start of the war in the spring of 2022, markets suffered in the near term, but eventually they've still compounded at a better than 10% annualized rate since the war in Russia and Ukraine started in February, March, in 2022. So the uncertainty now that overnight are currently going on where in addition to the strait of her moves, we have another energy choke point that may be in jeopardy of being blocked off. What happens with the energy markets when there's that much instability? Well, we saw oil go from over $100 a barrel. to less than $70 a barrel. We sit here at about $85 a barrel today. Expect more habit in the oil markets and what it does to the price for a gallon of gas. That's an uncertainty, and it's an indirect tax on all U.S. consumers. You were talking about you wish more stocks were rowing the boat. Is this a huge investment in AI that you're talking about? Are you talking about the Mega 7? What are you talking about? Just a handful of 10 to 20 stocks out of the 500 in the S&P 500 that are driving more than half of the index returns. We're starting to see breath improved marginally over the last 30 days. And is that the tech industry primarily you're talking about? We're seeing better performance, maybe not today in software stocks, companies that are beneficiaries of AI being net savers and productivity enhancers. That has yet to be realized, but I think it's in the early stages and will be the case where you get what I like to call more breath or in layman's terms, more stocks row in the boat. Do you have different advice right now for young investors versus older investors when it comes to all of this AI? Not really. I think, you know, even for the older investors, you still have. A lot of time on this planet, be invested in stocks. And the younger you go, you know, it's certainly bet on U.S. capitalism, U.S. companies, U.S. stock prices. How are you feeling about set it and forget it right now? Always be, always be proactive. You know, not excessively so in your 401k every day if you can change your allocation. it's always beneficial to take that three to six months review and say if the markets had a huge run, do I just take a little bit of winnings off the table to rebalance? But don't get too conservative because there's still a case where U.S. stocks outperform the majority of other asset classes.