Jim Bruderman, Vice Chairman of 1879 Advisors, discusses how markets are navigating the Russia-Ukraine conflict and spotlights areas within tech that could rebound.

Opening Bell

Geopolitical Conflict Continues to Weigh on Markets, Oil Industry

jim breuer man, let's bring him in. Vice Chairman of 18 79 advisers. Jim the financial markets just continue to isolate kind of Russia's economy in that context? How should investors navigate this week ahead? Yeah. Well, the important thing to consider, I think is that more than anything else, if you're investing for this week ahead, then then there's always going to be some inherent volatility in the markets. Um You know, my dad was managing portfolios the day john f Kennedy was shot in fact over on my desk. I have the slide rule that he used to use when he was doing his P. E. Valuations and his daily updates. My grandfather was managing my, in fact, he was also managing equities before the Berlin wall came down before the Berlin wall came up and my grandfather during World War Two, you know, the most important thing to keep in mind is that volatility is going to spike when there's an action when there's a lot of uncertainty like we had last week. Um you know, people are, there's always somebody factoring the worst, not how quickly will this be over, but how bad can this be get, I mean, how bad can this get? And and with that in mind, we've certainly seen that spike in volatility up close to 30 recently and we certainly saw a drawdown that put us in correction territory last week. But markets have recovered from that. We're showing some weakness this morning. Again, a lot of information over the weekend? I think the biggest thing factoring a weighing heavily on the markets is to what extent will the sanctions against Russia create recession? Maybe in europe, possibly in the United States, we think a recession in europe is a pretty good possibility given how heavy they rely on Russian oil and trade. We think in the United States, it's still a long shot and that really gets to the bottom of our analysis that we expect things to settle down. We think a lot of the price movements we've seen in commodities like oil may have already peaked last week. And and and we think volatility ought to come down unless, you know, unless hostilities increased considerably further. And, and that's a tough line to cross and that's, that's hard to believe could happen right now, interesting to hear that you have generations of family who families members who have been kind of invested in the markets and you followed suit, but, but, you know, I hear that, and I think generationally then, and now there are some pretty stark differences. Right, globalization, kind of, the more interdependent that we have seen economies become, is quite substantially different. You know, hit two Russian economies does send ripple effects throughout not only other economies, but other businesses, can you just talk about right now what investors are digesting in terms of the most immediate ripple effects, even from the central bank, um, you know, sanctions that we've seen on Russian, central central banks, Yeah, well, in terms of ripple effects, you know, certainly they're going to be felt stronger in europe. You know, arguably we had the makings of an overheating economy in the United States with demand in europe, likely taking a beating that certainly impacts international demand. Maybe that buys us a little relief on the inflationary front down the road. Um, so, you know, it's, it's, it's kind of hard to say exactly how things play out next. I think one thing in our favor is that jerome Powell has, you know, has shown that, that he's willing to pivot. And I think as we start to see, you know, how inflation is impacted, how supply and demand are impacted. And then hopefully we get the right decisions from the Fed and that's probably the most critical piece right now, given the uncertainty that we have ahead of us, given the uncharted waters. I mean, I think the, I think the risks of a policy of a policy mistake are probably weighing more on people's minds than anything else. You know. You know, if you asked me two weeks ago what we thought Q2 growth might be, I thought we'd have a nice big pop, especially on the services side of the economy. Now it looks like services are going to be somewhat muted and it looks like the supply bottlenecks that we've unfortunately seen for a long time. On the consumer durable side are going to persist for a while. You touch on the Fed and potential Fed activity there. And that's kind of the thing that stands out the most to me in terms of, you know, I think friday's rally most attributed that to most investors thinking that this kind of tension that we're seeing kind of the geopolitical situation really could weigh on the Fed in terms of, you know, whether they are a little more dovish than, than some would have anticipated. Right. I think the expectation for a 50 basis point hike That was around 50%, maybe two weeks ago. That's closer I think to around 10% now and so that doubles potential kind of Fed as opposed to a more hawkish one now is what the markets have been digesting. Uh, certainly on Friday, maybe not as much today. What's your take on what the Fed should and could do come just a few weeks from now? Well, I think that, um, I think that if you take a look at the, at the dynamic between the two and the 10 year, the two year is still pricing in six rate hikes, you know, over the next 12, over the next 12 months, you know, and, and the tenure is probably showing a little bit of strength should we because of a flight equality. But you know, but overall, I mean, I think Powell and the Fed are rightly very much concerned with inflation immediately and right now. And I think that is reflected in the, in the two years especially, but come, you know, a few weeks from now when they're starting to make those policy decisions, I think a lot of it has to do with where we are a few weeks from now. What kind of, you know, how is growth slowing both in the United States and across the board? This is such an ever changing and constantly evolving situation doesn't make the defense decision any easier. And it does. I mentioned a moment ago, change day by J day one of pivot to sectors with you really quickly. Obviously energy is up 23% in the last four weeks. Um, and some european nations are now refusing oil from Russia. What is your outlook on the oil and gas industry in the next couple of months. And do you see these commodity prices in the price shocks as long lasting year? I don't, I don't see the price shocks as extremely long lasting again unless hostilities, you know, take a take a turn for the worse. I think we may have seen a peak last week, as I mentioned earlier, um, with the extent with the higher prices that we are seeing then certainly I think the markets are going to be very, very focused on supply, which could very well be constrained in a lot of portions of the world. Um, but you know, having said that, I think that I think that energy overall, um would not be our favorite bet. In fact, we're probably we're probably a bit bearish in terms of investment in energy stocks and and energy in general right now. Um We do still think there's a lot of great strength in the in the U. S. Economy. We think that maybe the geopolitical challenges are overshadowing that strength. We've got very strong employment, we've got pent up demand, especially on the services side. Um You know, we've got we've got a lot of room we think for improvements in technology and technology led productivity especially to offset the the supply side challenges with with a very, very tight labor market. So we think we think companies like Microsoft, for example are well poised to continue to play the capital spending and technology play. In fact, if you look at technology, if you look at capital spending overall, especially in the corporate side, not only is it very strong this quarter, but it doesn't appear to be impacted by bottlenecks the way other sectors of the economy are. All right, Jim thank you so much for your insight. Jim Bittermann, vice chairman of 1879 advisers