Stocks lower as surging oil prices threaten growth prospects, Kohl’s investor day disappointment, Bitcoin back to being a risky asset

US, European stocks fall as oil prices skyrocket

US stocks declined as surging commodity prices continued to add to worry that economic growth prospects will take a big hit as the Ukraine uncertainty persists.  The crippling effect of oil prices above USD 130 would send many European economies into a recession and that sent major European stock indexes into bear market territory.  Long-term investors however are growing confident that most of the exposure risk for European banks with the Russia-Ukraine crisis has already been fully priced in and some investors are still hopeful that the war could end diplomatically. The base case however should be that this war won’t end in a month as talks have not provided any meaningful signs of a truce and since Ukrainians have surprised Russia and not given the Kremlin an easy victory. Energy stocks still remain a favourite trade and industrials are not too far behind.

It seems the fundamental shift due to Russia’s invasion of Ukraine is that inflationary pressures will remain elevated much longer than expected and that ultimately the economy will fall into a recession at some point over the next 24 months.

Equities extended declines after a bipartisan bill gain momentum to ban Russian energy imports and after a third round of talks between Russia and Ukraine did not yield a major breakthrough.  The US can handle not having any Russian energy supplies, but that is not the case for Europe. Europe is working on lowering its energy dependence away from Russia, but that won’t be noticeable until next year.

Kohls

The embattled department store has struggled to fight off activist pressure and the latest update from its investor day shows a big commitment to smaller shops, building its Sephora business, and growing its digital business.  Wall Street was not impressed with Kohl’s long-term plan and its share price has given up the majority of this year’s gains.

Bitcoin

Bitcoin seems poised to have persistent volatility going forward and it will struggle to break out of its recent USD 37,000 to USD 45,000 trading range until risk appetite can look beyond the Russia-Ukraine crisis. The use case argument for crypto has improved dramatically given Ukraine is using crypto to buy military supplies.  Many crypto currency companies are also resisting calls to close Russian accounts which shows the government’s reach into the space is limited.

Bitcoin has gone back to acting like a risky asset and will continue to be vulnerable to selling pressure if equities can’t stay above the lows made at the end of last month.

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