Jeffrey Kleintop, Chief Global Investment Strategist for Charles Schwab, says clarity on sanctions is driving the markets higher despite the ongoing Russian invasion of Ukraine.

Closing Bell

Stocks Surge on Friday, Dow Ends Day 800+ Points Higher

But let's turn back to the major indexes which were higher, the Dow booking its best day of 2022. It's best day in more than a year, in fact. And joining me now is Jeffrey Kleintop, chief global investment strategist at Charles. Schwab, Jeffrey thanks so much for coming on the show, strong games across the board. What was behind this for stocks oversold and so investors bought the dip, that's part of it. I think it's the clarity, Look, there's there's obviously chaos on the ground in Ukraine, but we have clarity on sanctions. It was always sanctions that we're going to be the have the potential for any economic or earnings disruption that could result from this this event that's been on radar screens for at least two or three months. Now, I know we wrote about The the risk of invasion of Ukraine by Russia back in our top risk for 2022, we published late last year. So the markets have been aware of this as a risk and concerned about the inflation and economic consequences of the potential for energy sanctions or Russia to retaliate to sanctions by cutting off lows. That now appears to be off the table, Russia is not cutting off lows and the sanctions are specifically excluding energy and agricultural exports from Russia. While that minimizes or weakens the effect of the sanctions, it also nearly eliminates their economic impact. And that's what stocks are embracing today. So certainly the sanctions, the markets reacting positively to those. And we saw that in the stock market yesterday with stocks reversing course after biden announced that second round of sanctions. And of course, learning today just moments ago that the White House is intending to sanction President Putin himself sticking with a similar move from EU leaders earlier today. What happens over the weekend? What should investors prepare for come monday morning knowing that it is only moments away from Russian forces taking key of the capital of Ukraine. That's right. Well, I I think watching further developments, if there are further sanctions unveiled, that could have economic consequences. Likewise, if Russia retaliate uh to those sanctions, as I just mentioned, that would be a concern seems to be off the table. I think one thing we can take maybe a little bit of comfort in is the historical track record. Unfortunately, we have 40 years or more of these geopolitical events to look back and understand how markets and economies tend to respond. And we can look back to similar events like Russia's invasion of Georgia uh and and uh and the independence of Abkhazia and South Ossetia that resulted from that, or Crimea, which was just in 2014. All those circumstances, we saw a brief drip in the wild swings in the market briefly and then a recovery and in fact stocks almost always ended up higher just five days later. So that's the backdrop from this very different than worried to see maybe china invade Taiwan, which would have massive supply chain and economic consequences. This is quite different and more akin to these other events where markets continue to recover in the ensuing days. Let's talk about that important story there that should not go unnoticed either, Jeffrey, we were covering this story months ago when china was moving warplanes into Taiwan of course, the home of Taiwan's semiconductor. I believe the biggest semiconductor by far out there around the world. What is a timeline for when that might happen, China? Looking to what Russia is doing in Ukraine making its own move deeper into Taiwan and thus impacting the supply chain. I think these are two completely different issues. China has made it clear the types of red lines that Taiwan would have to cross in order to engage in a military confrontation. Probably the number one would be if Taiwan would declare its independence from china publicly and officially. But that seems highly unlikely. Most Taiwanese citizens are not in favor of a move towards independence. So the elected leaders just don't have the mandate to do that. There are a few other items as well, none of which are on the cusp of of happening anywhere in the near term. So I think we'll continue to see these overflights. You know, every day we see four or five or nine planes flying over Taiwan from china. This harassment may continue, but I don't think this is any kind of precursor to an invasion. I think instead we can expect to continue to see those flows of semiconductors out of Taiwan semiconductor both to china and to the rest of the world as we put them in our devices. And what I think that means in the end is that as we look to the latter part of this year, were more likely to see supply gluts and supply shortages helping to bring inflation down and ease the number of rate hikes we might see by the Fed. What does this mean for investor Jeffrey? What should they be doing with their money right now? Well, I think there's a few things one you don't want to make emotional decisions in your portfolio. This was a test to see if you're comfortable with the amount of risk you have in your portfolio. If you couldn't sleep because of the moves in your portfolio, then you probably have too much risk and over the coming weeks or months you have to consider trimming that back. But you know, I think, I think overall what we've seen is historically the markets are likely to continue to recover here. I think the bigger issues we are back to these threats of high inflation and tightening financial conditions which will lead to more volatility this year, probably still a year of gains. But one of much more ups and downs and investors have been aware of. I think a few areas investors could focus on their portfolio, both in the near term and longer term are green stocks as europe seeks to improve its independence from fossil fuels from Russia? They could continue to see some, some interest cybersecurity stocks as Russia perhaps take this into asymmetric warfare and conducts more cyber attacks and then finally looking out to agriculture stocks, which may see a rise here in further agricultural commodity prices given the curtailment of wheat exports from Ukraine. So those are a few ideas that might work here in the near term that have some longer term support behind them as well. What are some of the green stocks in particular, Jeffrey, that you think could be attractive to investors? You know, I, so I don't, I don't pick individual equities, but I don't think it's hard to find stocks that are either tied to, you know, electrifying, uh, the infrastructure to updating the grid, whether it's industrial companies that are focused on this, uh, there are so many different areas from utilities to electrical equipment to semiconductors that are focused on green technology. I don't think you have to be too specific. There are lots of products CTF, some mutual funds that focus on this could be a big theme in the years ahead, A big thing, many years ahead. A lot of people watching the price of oil wondering what it means. Not only for prices at the pump up for energy names as well, Jeffrey Brent crude topping 100 bucks a barrel yesterday, its highest level since 2014. Do you expect that oil will continue to rise and what does that mean for consumers? We're gonna have an opec meeting next week and we'll learn a bit more about that. But it appears that we are maybe close to a deal with Iran on returning their supply to the market in an official way. Maybe we get a breakthrough in the Iranian nuclear deal. Both the Opec meeting and the Iran deal have the potential to move us in the direction of more supply to the market. That might ease some of the surge here in prices. But I expect prices to remain relatively high here in the near term. Here's another question for you Geoffrey. Knowing that we do see tensions continue to escalate in eastern europe. Does that delay or slow down the Feds path forward for interest rates? We don't think it changes the Feds outlook for rates. I think that we are still likely to see a rate hike here um, on in March, March 16th, probably 25 basis points rather than 50. We've heard mixed commentary from some of the hawks and some of the doves on the FOMC. But we're likely to hear from Powell this week on both Wednesday and thursday is he testifies to Congress and I think he'll give us a little bit of clarity on how much the Ukraine situation is factored into his thinking as it relates to the next rate hike. So a lot will, will get a lot on that next week. And in addition, of course the jobs report on friday, which may have an influence as well. Could cyber attacks, cyber warfare negatively impact the american economy. Well, it's hard, we haven't yet seen an attack that that has done so, but it's certainly within the realm of possibility. And one of those risks out there that is ever present, much like geopolitical risk, it's simply an ever present part of investing. But maybe that risk is a little bit heightened here in the near term. All right, Jeffrey, Kleintop, chief global investment strategist at Charles, Schwab, Jeffrey, thanks so much for taking the time.