Rising rates and oil prices are squeezing the stock market, and CNBC’s Investment Committee is split on how to respond. Steve Weiss is raising cash while Jim Lebenthal stays fully invested.
The committee, a panel of money managers on CNBC’s Halftime Report, debated how to position as Treasury yields and Brent crude climbed.
What Rising Rates and Oil Prices Do to Stocks
The 10-year Treasury yield climbed as high as 5.27% on Monday, its highest level since 2007. Brent crude, the global oil benchmark, traded above $105 a barrel.
That combination therefore pressures equities in three ways.
- Valuations: Higher yields make bonds more competitive and lower what investors pay for future earnings.
- Rate-sensitive sectors: Real estate, utilities, consumer discretionary and financials tend to feel higher borrowing costs first.
- Inflation: Costly energy can keep the Federal Reserve’s policy tighter for longer.
How the Investment Committee Is Positioned
These forces have led CNBC’s investment committee to make different moves in its portfolio to navigate this tricky time for stocks. Weiss sold Cisco (CSCO) and trimmed Meta Platforms (META). He holds about 25% in cash and says that figure could rise.
Meanwhile, Meta shares fell 4.8% on Monday after a rally of nearly 13% the previous week.
“But look, there is no reason for the 10-year yield to come down.”
Steve Weiss, founder and managing partner of Short Hills Capital Partners, on CNBC
He sees 5% as support for the 10-year yield and a clear path to 6%.
Weiss argues yields have no reason to fall while oil stays high, because Iran has every interest in keeping crude rising. He does not see a reason to put cash to work in stocks unless they become clear bargains.
In contrast, Lebenthal, of Cerity Partners, argues earnings can carry stocks higher. He says the market’s forward earnings multiple has fallen from roughly 22 times to 18.5 times this year. Still, he argues, earnings growth justifies that level.
Another member of the committee described clear downtrends in real estate, utilities, consumer discretionary, and financials. That speaker said many investors had expected oil to fall before the midterm elections.
What Could Change the Picture
Oil is the swing factor, and talks to reopen the Strait of Hormuz have not produced a deal. However, a drop in crude could ease the pressure.
Turtle Creek strategist David Spika sees stocks gaining 5% to 10% by year-end if oil keeps falling. Fundstrat’s Tom Lee argues higher borrowing costs hit weaker companies harder.
Earnings season will test whether profit growth can offset a 10-year yield above 5%.
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