The Economy May Be ‘Sleepwalking Toward a Big Recession,’ Warns Energy Expert

As stocks continue to rally, global markets may be ignoring a much bigger risk posed by the current oil shock. Indeed, the S&P 500 (SPY) recently hit a new intraday high, despite oil prices rising more than 50% since the U.S.-Iran conflict began on Feb. 28. Speaking to CNBC’s Squawk Box Europe, Energy Aspects founder Amrita Sen said that investors appear too optimistic and are treating the energy squeeze as if it is mostly an Asian problem. In her view, oil should be higher, equities should be weaker, and the global economy may be “sleepwalking” toward a “big recession.”

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The biggest issue is supply, especially around the Strait of Hormuz. OPEC has promised to increase production, but Sen argued that the move is mostly symbolic and not enough to replace lost barrels. She said that the real question is how much oil capacity will return and how quickly it will happen when Hormuz actually reopens. If the disruption lasts, the world may need to cut demand by around 10 million barrels per day, back toward 2013 levels, even though the population is now much larger. Because of that, she expects Brent crude’s new floor to be around $80 to $90 per barrel.

Separately, Morgan Stanley (MS) chief Europe economist Jens Eisenschidt said that stress is building in areas like airlines, gasoline, and manufacturing, where even small oil inputs matter. For Europe, he said that a quick end to the conflict could still allow the European Central Bank to look past the price spike and return toward its 2% inflation target by June. However, if there is no resolution within the next week or two, he warned that inflation risks could become harder to ignore and may force the ECB toward a rate hike.

Is SPY Stock a Good Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on SPY stock based on 412 Buys, 84 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $844.84 per share implies 17.2% upside potential.