UBS Head of Equity Derivatives Research Stuart Kaiser joins Yahoo Finance Live to discuss market behavior amid the Russia-Ukraine crisis, inflation, and oil price swings.

Video Transcript

JULIE HYMAN: Let's dig more into the markets, though, and what kind of signals the yield curve is sending, what investors should make of oil prices right now, and whether that bounce that I mentioned off the lows is going to last. Stuart Kaiser is with us, UBS head of Equity Derivatives Research. He's joining us on the phone. Stuart, I want to start with that last point. So we have seen now about a 9 and 1/2% rally from the lows of the S&P 500. We've seen-- starting to see some calls that maybe that rally is sputtering out. What are you seeing here in terms of all the tea leaves that you tend to watch? STUART KAISER: Hey, good morning, Julie. Yeah, I think we're a little bit skeptical, I think, of the rally that we've seen so far. Yeah, we've been fairly cautious year to date, simply because of, you know, the inflation and growth mix, as well as the Fed shifting policy. And then, obviously, you layer on top of that the Ukraine situation. And we've been pretty cautious here. Obviously, it's been a very sharp rally, but it's happened on relatively low volumes. And the read on positioning of institutional investors is that it's still pretty light. So it does seem like a rally that, you know, hasn't been supported by a wide range of people. And the two risks that I mentioned, I think, are still prevalent out there in the market. So, you know, we're still fairly cautious here, with the caveat that you have to respect the price action. And, you know, if the market is behaving in a way that's maybe more positive than you think, you know, I think it's worth kind of taking that on board. But the big picture, I think we are still fairly cautious ahead of what's going to be really important. Retail sales and inflation data over the next couple of weeks, and then, obviously, a key Fed meeting. So look, I don't think the rally is without warrant because you have to respect what the markets are telling you. But big picture, we're still pretty cautious about things. BRIAN SOZZI: Stuart, give me one thing that could undo this rally to kick off April. STUART KAISER: Yeah, I think it's-- I think higher oil prices is probably number one. You know, I think the price of oil right now is a pretty good market barometer for escalation in the Ukraine. Obviously, high prices get people worried about the growth outlook kind of medium term. And then near term. It gives you inflation risk. So I think a quick move higher in the price of oil would be probably the number one risk. And then I think a close second would be the market pricing, how many total rate hikes we're going to get from the Fed. You know, there's a narrative here that if we get 50 basis points in May, that's just pulling forward at your total of number of hikes is going to be about the same. But if we were to start pricing, I think, additional hikes in the future, that would kind of be a secondary consideration. So I think, first, it's oil, and then second will be kind of the terminal rate for the Fed. JULIE HYMAN: Let's dig more into oil a little bit for a second, Stuart, because, you know, obviously, we see a pullback in oil prices this morning. I'm seeing most analysis that that won't necessarily be sustained, that this SPR release isn't necessarily going to have a long impact. Do you share that view at UBS? And if so, how do you hedge against future increases in oil prices? STUART KAISER: Yeah, look, I think to your point earlier, it's hard for an SPR release of, you know, call it a million barrels a day to offset potentially disrupted supply from Russia. So, you know, I think in the near term, to your point, it's a tactical positive. But, you know, if this continues for weeks and months, you know, clearly, the impact of the SPR release would probably be waning over that time. You know, from our perspective, hedging oil, you have a couple of choices. One is to just hedge that directly through oil, so either oil futures or the USO ETF, which is an area where we do like owning upside. And that'll give you exposure to kind of the front of the oil curve. You know, the second would be to own upside in energy equities. So that could be XLE, which would be S&P energy sector, or finding kind of large cap stocks that are much more exposed to the price of oil. I think the key there, though, is that energy equities tend to respond less to one-month oil prices and more to how oil prices are behaving, you know, a little bit further out, kind of 12 to 24 months. So I think if you think this is just a tactical issue, you probably focus strictly on the price of oil. If you think this is something a little more structural that is going to get oil prices up over the foreseeable future, call it 12 to 24 months, then I think you want to do that through to XLE and parts of the energy asset class. JULIE HYMAN: That is a very interesting point about how to think about that. Thank you, Stuart. Appreciate it. Stuart Kaiser's UBS head of Equity Derivatives Research, good to catch up with you.