Schwab's Sonders Warns of 'Red Flags,' Possible Inflationary Boom

Summary

Liz Ann Sonders warns that markets are complacent about the risk of a significant oil price spike driven by low stockpiles and potential Strait of Hormuz disruptions, which could push oil to $150 and damage equities. She highlights a disconnect between weak sentiment surveys and stronger hard data, describing the economy as an inflationary boom with risks of slowing growth, and notes that equity corrections may continue through rotation rather than an index-level drawdown.

• Markets may be complacent about the economic impact of rising energy prices and a potential oil spike.
• Chevron and Exxon leaders recently warned oil could reach $150 within weeks if the Strait of Hormuz is not reopened soon.
• Oil prices and equities remain inversely correlated, so a sharp oil rise could hurt stocks.
• Survey-based data (consumer and business sentiment) are flashing red flags, with NFIB small business optimism weaker than expected.
• Hard economic data is still strong, creating a disconnect with soft data; the economy is in an inflationary boom.
• S&P 500 has not had an official 10% correction, but average member max drawdown is -22%, and Nasdaq average member drawdown is -38%, indicating rotation rather than index collapse.