This oil spike might be good news

We’ve all heard about how the ongoing war in Iran is hurting the US economy. With oil prices rising to nearly $120 per barrel over the weekend, economists are calling this the biggest oil disruption in history, with many hinting at chances of stagflation.

US stocks slid over the past week, too. Airlines and cruise operators tumbled thanks to soaring fuel prices, while some tech firms faced disruptions tied to data centers in the Middle East.

Lee’s bullish case

This all sounds pretty grim, but Tom Lee, head of research at Fundstrat, has a different perspective: He argues that the rise in oil prices actually serves to benefit the US economy. That sounds pretty counterintuitive at first, but his reasoning comes down to a few key points:

1. Exports: The US is a net exporter of oil, shipping 35% more oil than it imported last year. When prices rise, that boosts revenues for domestic energy producers.
2. Competitive advantage: Many economies in Asia and Europe rely heavily on oil flowing through the Strait of Hormuz, while the US doesn’t. China, for example, gets 37.7% of its oil through the strait, compared with just 2.5% for the US.
3. Flow to growth: Oil shocks often push global capital away from cyclical markets and toward growth-heavy markets like the US, where tech dominates the major indexes and corporate earnings are less tied to energy prices and economic cycles.
4. The Trump “put”: If energy prices spike too much, political pressure increases. Lee argues the Trump administration can reverse the effects and offer quick resolutions that bring prices back down.

What comes next

In fact, we are already seeing signs of Lee’s last point becoming reality: In a press conference yesterday, President Trump said the war will end “very soon”. Oil prices fell yesterday, and sank another 8% this afternoon.

But even without his intervention, Lee notes that history often contradicts the instinctive panic around oil spikes. In several past episodes dating back to 1983, stocks actually performed pretty well in the months following price shocks.

With that in mind, Lee maintains his view that stocks will end this month higher than where they started. His favorite trades include energy and basic materials, along with industrials, financials, and small-caps. He also remains bullish on the Mag 7, bitcoin, and ethereum, arguing that the market may already be 95% through the current selloff.

Lee’s optimism is a ray of light in an otherwise gloomy market environment, but investors should still remain cautious as the geopolitical situation continues to evolve.—SY