This week's spike in oil pricesis giving investors bad flashbacks to previous crude-fueled recessions. How long can stocks hang on?
"We think that if you can see oil maintain a level of over $120 a barrel over an extended period, say, three months — you have to recalculate your expectations for economic growth, and therefore earnings and prices of stocks," says Erik Ristuben, Russell Investments' chief strategist.
Right now, Ristuben says, oil prices are putting a cap on where prices of stocks can go.
TheStandard & Poor's 500and the Nasdaq struggled to hold gains as he spoke. Luckily, Ristuben doesn't expect the feared long-term oil hikes to pan out.
"We agree with Secretary [Timothy] Geithner, who said the price increases are a combination of increased economic activity and the tension in Iran. We think the tension in Iran will come out of the market. It's unlikely to result in a supply-chain disruption, therefore oil will drop below $120 again," he added.
The safest bet right now, given oil's threat? Ristuben recommends emerging markets in general.
"I think most investors would be well served by having a broadly diversified index of emerging-market portfolios," he said.
Supporting his point, the Russell Emerging Markets Fund has outperformed the Russell 1000 index of U.S. equities for the year to date.
"If you continue to see more relaxation around Europe, you'll continue to see emerging [markets] outpace non-U.S. and the U.S. stocks, which has been the case this year," he said.
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Erik Ristuben did not specifically recommend any stocks or index.