The stock market is facing intense pressure from climbing interest rates and surging oil prices, leaving CNBC’s Investment Committee divided on the right strategy. While Steve Weiss is actively increasing his cash reserves, Jim Lebenthal prefers to remain fully invested.
This discussion took place among the money managers on CNBC’s Halftime Report as they evaluated their portfolio stances amid rising Treasury yields and Brent crude prices.
What Rising Rates and Oil Prices Do to Stocks
On Monday, the 10-year Treasury yield surged to 5.27%, marking its peak level since 2007. Meanwhile, Brent crude, which serves as the international oil benchmark, pushed past $105 per barrel.
Together, these market conditions create headwinds for equities across three distinct areas.
- Valuations: Elevated yields increase the competition from bonds and reduce the amount investors are willing to pay for anticipated future earnings.
- Rate-sensitive sectors: Financials, utilities, real estate, and consumer discretionary are among the first to experience the impact of steeper borrowing expenses.
- Inflation: Expensive energy resources threaten to keep Federal Reserve monetary policy restrictive for an extended period.
How the Investment Committee Is Positioned
These macroeconomic pressures have prompted contrasting portfolio adjustments among CNBC investment committee members trying to navigate the challenging environment. Weiss parted ways with Cisco (CSCO) and reduced his stake in Meta Platforms (META). He currently maintains a cash allocation of roughly 25% and notes that this percentage may grow.
During the same session, Meta stock dropped 4.8% on Monday following a nearly 13% gain the week before.
“But look, there is no reason for the 10-year yield to come down.”
Steve Weiss, founder and managing partner of Short Hills Capital Partners, on CNBC
He views 5% as a support level for the 10-year yield and anticipates a distinct trajectory heading toward 6%.
Weiss contends that elevated oil prices provide no catalyst for yields to drop, pointing out that Iran is fully motivated to drive crude prices higher. He finds no compelling argument to deploy cash into equities unless stocks present obvious bargain valuations.
Conversely, Cerity Partners’ Lebenthal maintains that corporate earnings possess the strength to lift stock prices. He points out that the market’s forward earnings multiple has contracted from approximately 22 times down to 18.5 times over the course of the year. Even so, he asserts that ongoing earnings growth supports this valuation.
Another panel participant highlighted pronounced downward trends affecting financials, consumer discretionary, utilities, and real estate. That speaker noted that many market participants had anticipated oil prices would decline prior to the midterm elections.
What Could Change the Picture
Crude oil remains the primary wild card, and negotiations aimed at reopening the Strait of Hormuz have not yet yielded an agreement. Nevertheless, a decline in oil prices could alleviate current market strains.
David Spika, a strategist at Turtle Creek, projects that equities could advance 5% to 10% before year-end if oil continues to drop. Meanwhile, Tom Lee of Fundstrat suggests that higher borrowing expenses disproportionately penalize weaker businesses.
Upcoming corporate earnings reports will test whether profit growth can successfully counteract a 10-year Treasury yield sitting above 5%.
Frequently Asked Questions
Why are rising interest rates and oil prices pressuring the stock market?
Higher Treasury yields make bonds a more attractive alternative to stocks and reduce the present value of future earnings. At the same time, expensive energy fuels inflation concerns, which can cause the Federal Reserve to maintain tighter monetary policy for longer. Additionally, rate-sensitive sectors like real estate, utilities, consumer discretionary, and financials suffer from increased borrowing costs.
How is Steve Weiss positioning his portfolio?
Steve Weiss is raising cash—holding about 25% with the possibility of increasing it further—by selling Cisco and trimming his position in Meta Platforms. He believes yields are heading toward 6% and sees no reason to buy stocks unless they become clear bargains.
What is Jim Lebenthal’s perspective on the market?
Jim Lebenthal remains fully invested, arguing that solid corporate earnings can drive stocks higher even though the market’s forward earnings multiple has compressed from roughly 22 times to 18.5 times this year.
What market conditions could change the current outlook for stocks?
A significant drop in oil prices could ease market pressure, potentially helping stocks gain 5% to 10% by year-end according to some strategists. Upcoming corporate earnings reports will also determine if profit growth can offset the impact of a 10-year Treasury yield above 5%.
