Wall Street Bulls on Ukraine Crisis

(Bloomberg) — Wall Street strategists, bullish before Russia’s military buildup near Ukraine’s border, are mostly sticking to their view that stock markets can weather Europe’s brewing security crisis. For now at least.

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After a week of volatility, they say loose financial conditions and growing corporate profits will anchor large-cap indexes amid deteriorating relations between Moscow and Western powers. Corporate balance sheets, meanwhile, will prove broadly resilient to higher energy prices and disrupted supplies.

In this view, the Federal Reserve, not geopolitics, remains the principal threat, while outsize hedging activity gives portfolio managers some firepower to ride through the crisis.

U.S. officials said additional American sanctions against Russia are coming after President Joe Biden issued an executive order prohibiting U.S. investment, trade, and financing to separatist regions of Ukraine.

The S&P 500 and the Nasdaq 100 fell Tuesday, while the Stoxx 600 Index pared losses to trade flat.

Easing expectations on the pace of Fed rate hikes may buoy risk sentiment, according to Craig Johnson, chief market technician at Piper Sandler & Co. Traders are now pricing in six 25-basis-point hikes for the full year down from earlier expectations for seven increases in 2022.

Here are five strategists on why stock markets are likely to weather the geopolitical storm.

‘Oversold’

Dennis DeBusschere, founder of 22V Research

Yearend S&P 500 target: 5,040

“Financial conditions have tightened but remain historically easy, earnings growth continues to offset multiple contraction, and just about every major market is oversold.”

“We remain long thematic baskets like pricing power, companies that benefit from higher real rates and improving supply chains. An escalation in Russia/Ukraine could lead to a much quicker tightening of financial conditions and limit the increase in bond yields.”

‘Short-Term Disruptions’

Chris Harvey, head of equity strategy at Wells Fargo

Yearend S&P 500 target: 4,715

“We think geopolitical stress surrounding Russia and Ukraine will add volatility and some near term down-side to risk markets including equities. We believe Fed action will be much more influential longer-term. Geopolitical may cause some short term disruptions but changes in monetary policy will be longer lasting and more pervasive.”

‘Accurate’ Discount

John Stoltzfus, chief investment strategist at Oppenheimer

Yearend S&P target: 5,330 target

“Consider the market’s dip and recovery in previous escalation of hostilities from as far back as the Cuban Missile Crisis, the Gulf War, the annexation of Crimea in 2014. Notwithstanding initial volatility we recall that the U.S. market has in the distant and recent past considered how a geopolitical situation might affect corporate revenue and earnings and arrived at a discount that in hindsight has proven to be remarkably accurate.”

“Markets are resilient in our view for a number of reasons. Fourth-quarter earnings season has surprised nicely to the upside across key sectors which suggest growth is not the problem but rather that supply chain disruptions remain prevalent.”

Recovery Potential

Ed Clissold, chief U.S. strategist at Ned Davis Research

Yearend S&P 500 target: 5,000

“Historically, crisis events have triggered pullbacks, but the market has typically recovered the losses within a few months. Looking at 54 crisis events since 1907, the Dow Industrials have fallen an average of 7.1% during the crisis period, but gained an average of 9.7% in the six months after the crisis ended.”

“Russia-Ukraine risks spiking already high energy prices, meaning the earnings slowdown could be steeper than consensus estimates. Big picture, this does not alter our U.S. stock market outlook for a weak first-half with the potential for a second-half recovery.”

Low Earnings Risk

Dubravko Lakos-Bujas, strategist at JPMorgan Chase & Co.

“Russia-Ukraine tension is a low earnings risk for U.S. corporates. While the path remains unclear with potentially elevated market volatility in the short-term, tightening monetary policy, in our view, still remains the key risk for equities. We’d caution against making hasty changes to global asset allocations right now.”