Stifel: The "turbulent phase" in the Middle East will drive value stocks to outperform growth stocks

Investing.com — Stifel analysts warn that after coordinated strikes against Iran by the U.S. and Israel, the Middle East has entered a more turbulent phase, effectively closing the Strait of Hormuz. This critical maritime corridor typically carries over 25% of global seaborne oil, and its closure has caused Brent crude prices to surge 14%, while European natural gas prices jumped 70%.

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Major shipping companies are rerouting ships around Africa, and insurers are pulling back coverage. Stifel believes that if the blockade persists, oil prices could rise to $100 per barrel, creating a significant trend in the stock market where value stocks outperform growth stocks.

Inflation pressures and P/E ratio compression

Stifel’s strategists see the recent military escalation as highly intentional, especially given its timing alongside U.S. actions against Venezuela and before key trade negotiations with China. The main economic consequences of rising energy costs are a double blow to global markets: tighter financial conditions leading to compressed high P/E ratios, and a surge in overall inflation.

Since consumers drive about 68% of U.S. GDP, ongoing pressure from rising fuel and utility costs is expected to severely impact discretionary spending.

For investors, the macro environment favors energy and utilities sectors while punishing high-growth tech stocks sensitive to rising discount rates. The report notes that Asian importers face the greatest risk of supply chain disruptions, as the costs of rerouting energy flows add a significant “safety premium” to global trade.

Global trade strategy reorganization

The disruption of the Strait of Hormuz is not an isolated event but a catalyst for broader shifts in transatlantic and transpacific trade relations. Stifel emphasizes that large-scale military build-ups in the region are forcing “just-in-time” supply chains to readjust, as the global energy flow slows significantly.

Longer transportation times and the resulting capital inefficiencies effectively tax the global manufacturing sector, further exacerbating the “inflation dilemma” faced by Western central banks.

As bombings continue, market participants’ focus has shifted from temporary volatility to the risks of a “long-term high interest rate environment.” If oil prices stay near $100, the likelihood of a soft landing diminishes, as the Federal Reserve and its peers may be forced to maintain restrictive policies to combat energy-driven price surges.

Stifel believes that in this “wartime economy,” defensive positioning and allocation of hard assets remain the most viable paths to protect investment portfolios.

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