Macro

Market Volatility Rises: AI, Energy Stocks May Shine Amid Tensions

Amid rising market volatility due to geopolitical tensions, analysts spotlight resilient sectors and dividend stocks as strategic havens.

By Athena Xu

4/17, 00:47 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Analog Devices, Inc.
Corning Incorporated
Halliburton Company
Honeywell International Inc.
JP Morgan Chase & Co.
Microchip Technology Incorporated
Marathon Petroleum Corporation
NXP Semiconductors N.V.
Phillips 66
Rockwell Automation, Inc.
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Key Takeaway

  • Market volatility increases amid Middle East tensions and economic concerns, but certain sectors like AI and energy may offer investment opportunities.
  • Analog Devices, NXP Semiconductors, Microchip Technology, Corning, Honeywell, Rockwell Automation highlighted for potential gains tied to AI demand.
  • Energy stocks such as Halliburton, Phillips 66, Marathon Petroleum seen as attractive due to rising oil prices and geopolitical hedge.

Market Volatility Amid Geopolitical Tensions

The recent market selloff, influenced by rising oil prices due to geopolitical tensions between Iran and Israel, has contributed to increased volatility in the financial markets. This situation is compounded by higher-than-expected inflation readings, spiking long-term bond yields, and cautious remarks about the economy from JPMorgan Chase CEO Jamie Dimon. Chris Senyek, chief investment strategist at Wolfe Research, anticipates that "volatility is likely to pick up and equity markets are likely to face some near-term downward pressure," primarily due to "rapidly rising geopolitical risks." Despite these challenges, the VIX, Wall Street's fear gauge, remains below 20, indicating that market volatility, while heightened, is still relatively low by historical standards.

Opportunities in Specific Sectors

Analysts and investment managers are identifying potential opportunities in specific sectors that could withstand or even benefit from the current market conditions. Emily Bowersock Hill, CEO of Bowersock Capital Partners, highlights stocks like Corning, Honeywell, and Rockwell Automation as being "highly levered to artificial intelligence, but that are generally unloved by the market as of now." Additionally, energy stocks are seen as compelling opportunities, with crude prices hovering around $85 a barrel, up nearly 20% this year. Wolfe Research's oil analysts have Outperform ratings on Halliburton, Phillips 66, and Marathon Petroleum, viewing energy as a "great inflation and geopolitical hedge."

Dividend Stocks as a Defensive Strategy

In response to the market's unpredictability, Morgan Stanley has emphasized the importance of dividend stocks as a defensive strategy. The MSCI Asia Pacific ex-Japan High Dividend Index slightly outperformed its counterpart in the first quarter of the year, signaling a shift towards "Defensive Value" and "Quality Dividend" stocks. Morgan Stanley's "conviction list" includes companies like China Overseas Property Holdings, China Medical System Holdings, and the Bank of China, with the latter offering an 8% yield. This focus on dividend stocks is seen as a way to navigate the volatile market landscape, providing investors with a reliable income stream amidst macroeconomic uncertainties and geopolitical risks.

Street Views

  • Chris Senyek, Wolfe Research (Neutral on the market):

    "Our sense is that volatility is likely to pick up and equity markets are likely to face some near-term downward pressure... While upside surprises may be somewhat smaller than they’ve recently been, our sense is that 1Q results and guidance will be supportive of further equity market gains—especially, if the biggest stocks leveraged to the AI [artificial intelligence] trade blow past expectations once again."

  • Emily Bowersock Hill, Bowersock Capital Partners (Bullish on Corning, Honeywell, Rockwell Automation):

    "Stocks that are highly levered to artificial intelligence but that are generally unloved by the market as of now."

  • Irene Tunkel, BCA Research (Bullish on energy stocks):

    "Energy is a great inflation and geopolitical hedge. The market cares about this conflict because of the price of oil."

  • JJ Kinahan, IG North America (Neutral on the market):

    "This is not a time to panic... But this is a 'warning shot' because the 'interest-rate picture remains unclear.'"

  • Joe Salmond, Thornburg Investment Management (Cautiously Optimistic on diversified portfolios):

    "Geopolitics has transformed from a simmering concern to a significant risk for investors and companies alike... And when more things could potentially go wrong, as we think is the case now, diversification is more critical than ever."