The chief investment strategist at Charles Schwab is warning that oil prices could suddenly soar and send stocks lower.
In a new interview on Bloomberg Television, Liz Ann Sonders says that if the US-Iran conflict keeps the Strait of Hormuz closed for much longer oil prices may quickly reach $150 per barrel.
“I think it was last week that leaders within both Chevron and Exxon came out and said that given how low stockpiles are that without a relatively imminent opening of the Strait of Hormuz and getting that oil flowing again they cited numbers as much as $150 in a matter of a few weeks. We are on the brink of what potentially could be a more significant spike.
We’re still in an inverse correlation territory between oil prices and the stock market… but there has been so many fits and starts in the announcements of an imminent deal, and then we don’t get one… so time is not on the side of the of the economic bulls as it relates to the oil price channel.”
Sonders also warns that stocks may undergo deep corrections as investors rotate funds in reaction to market conditions similar to what occurred in the first quarter of the year.
“The S&P at the index level didn’t have a correction level maximum drawdown this year. Its weakness in February and March hit 9%… But if you go member by member in the S&P 500 and look at their individual maximum drawdowns and then take an average of that, it’s negative 22%. In the case of the Nasdaq, the average member maximum drawdown is negative 38%. You could continue to have whether it’s a correction of valuation excess or a correction of sentiment excess occur via a process of rotation as opposed to a correction happening all at once at the index level.”
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