Michael Hartnett 5.0 2 ideas

Hartnett states the current oil shock is a supply shock (vs. 2008's demand shock) and draws parallels to the 1973/1979 crises. He says the market is coming into this thinking it will be short-term, but it may not be. A protracted supply disruption in the Strait of Hormuz or to physical infrastructure would force prices exponentially higher to destroy demand and rebalance the market. Higher oil prices are needed to force a policy or diplomatic solution. The risk is prices go to $150-$200 if the conflict is measured in weeks, not months. A swift diplomatic resolution or ceasefire that quickly restores supply flows.

Hartnett states that ironically, the consumer is what he would be "nibbling at," as no one loves the consumer with oil up and unemployment rising. He says consumer stocks have "discounted stagflation." Post-conflict, President Trump will need to address "affordability" to win midterms, implying a policy pivot that could benefit the lower-income consumer. This group is universally disliked, creating a contrarian trading opportunity. Lower-income consumer stocks represent a potential tactical trading opportunity as they have priced in bad news and may benefit from future policy support. The conflict drags on, causing a deeper-than-expected growth shock that further cripples consumer spending power.