Rising Rates and Oil Squeeze Stocks, Panel Splits on Strategy

Stock markets are under pressure from increasing interest rates and oil prices, and the experts on CNBC's Investment Committee disagree on the best approach. Steve Weiss is moving into cash, while Jim Lebenthal remains fully invested.

The committee, which consists of money managers from CNBC's Halftime Report, discussed how to adjust their portfolios as Treasury yields and Brent crude both advanced.

What Rising Rates and Oil Prices Do to Stocks

On Monday, the 10-year Treasury yield peaked at 5.27%, a level not seen since 2007. Meanwhile, Brent crude, the global oil benchmark, was trading above $105 per barrel.

Equities face three types of pressure from this combination.

• Valuations: With higher yields, bonds become more attractive, reducing what investors will pay for future corporate earnings.
• Rate-sensitive sectors: Real estate, utilities, consumer discretionary and financial stocks are often the first to feel the impact of higher borrowing costs.
• Inflation: Expensive energy can force the Federal Reserve to maintain a tighter policy for an extended period.

How the Investment Committee Is Positioned

These factors have prompted CNBC's investment committee to take varied actions in their portfolios as they try to navigate the challenging stock market. Weiss has sold Cisco (CSCO) and reduced his position in Meta Platforms (META). He currently holds around 25% in cash and indicates that percentage may increase.

Meta shares declined 4.8% on Monday, following a rally of almost 13% the previous week.

“But look, there is no reason for the 10-year yield to come down.”

Steve Weiss, founder and managing partner of Short Hills Capital Partners, on CNBC

He views 5% as a support level for the 10-year yield and sees a clear potential climb to 6%.

According to Weiss, yields have no reason to decline while oil remains elevated, because Iran has a strong incentive to keep crude prices rising. He sees no reason to invest cash in stocks unless they present obvious bargains.

Lebenthal from Cerity Partners takes a different view, arguing that earnings can drive stocks higher. He notes that the market's forward earnings multiple has dropped from about 22 times to 18.5 times this year. Still, he contends that earnings growth supports that valuation.

Another committee member pointed to clear downward trends in real estate, utilities, consumer discretionary, and financials. That individual said many investors had anticipated a decline in oil prices before the midterm elections.

What Could Change the Picture

Oil remains the key variable, and efforts to reopen the Strait of Hormuz have not resulted in an agreement. Still, a fall in crude could relieve the strain.

Turtle Creek strategist David Spika forecasts that stocks could gain 5% to 10% by year-end if oil continues to drop. Fundstrat's Tom Lee argues that higher borrowing costs hurt weaker companies more.

The upcoming earnings season will determine whether profit growth can counteract a 10-year yield above 5%.