Buy energy, sell growth stocks if Ukraine conflict resolved: Christopher Wood of Jefferies

Investors should use any decline in global energy stocks triggered by the resolution of the Russia-Ukraine conflict as an opportunity to add positions in energy stocks, Christopher Wood, global equity strategist at Jefferies, said in the latest edition of the Greed & fear newsletter on March 31.

The veteran strategist also recommended that investors should use any counter-rally in growth stocks, especially loss-making technology companies, as an opportunity to further reduce positions in such counters.

Market’s expectations of a resolution of the ongoing war between Ukraine and Russia have increased ever since negotiations started in Turkey between the two countries, intermediated by Turkish President Recep Erdogan.

Domestic benchmark indices have recovered more than 10 percent after hitting multi-month lows earlier in March after the war broke out between the two Eastern European countries.

“GREED & fear would use any sharp sell-off on “the end of Ukraine war news” as an opportunity to add to energy exposure because oil was already in a bull market before Putin launched the invasion because of the supply constraints,” Wood said.

Wood also highlighted the futility of the recent bounce in global technology stocks on receding concerns over the Russia-Ukraine crisis given that a resolution will make it easier for the US Federal Reserve to raise interest rates at a quicker pace.

“The money markets are now discounting a further 200bp of Fed rate hikes by the end of this year after the 25bp hike earlier this month. That said, GREED & fear continues to believe that the key near term issue for markets is what the Fed signals on the balance sheet,” Wood said.

The US Federal Reserve is widely expected to raise interest rates by 50 basis points each in May and June with the likely start of a reduction of the central bank’s balance sheet, which was aggressively expanded in the past two years to cushion the blow of the COVID-19 pandemic.

Fed’s quantitative easing, which concluded last month, has widely been credited as the primary driver of the surge in global risk assets over the past two years from equities to cryptocurrencies.

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