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Morgan Stanley, UBS, Goldman Sachs slash oil forecasts amid economic concerns

Yahoo Finance Live anchors discuss Morgan Stanley, UBS, and Goldman Sachs cutting their outlook on oil amid recession fears.

Video Transcript

JULIE HYMAN: Welcome back. We're still a few minutes to the opening bell. And as we look at the backdrop today of this hotter than estimated inflation print, consider investors were feeling pretty pessimistic going into this. If we dive into the latest Bank of America and fund managers survey, it shows investors are fleeing equities as fear of a recession grows. Over half of the respondents-- that's 52% of the 212 participants-- said they were underweight equities, 62% overweight on cash.

So that sort of gives you some insight into the minds of investors, even though, going into this CPI print, there was optimism that inflation maybe would be getting a little bit better. Still, the outlook for the Fed to raise rates, maybe that seems to be still keeping people on the sidelines, or at least, feeling like they can't be as invested, perhaps, as they otherwise would be.

BRAD SMITH: Well, there's so much fanfare around when you see, especially new investors, get into either a highly speculative asset, and we've seen that vacuum take place over the course of the last few months, especially-- and crypto is perhaps the poster child of those speculative assets. But then you've still got where investors are even going to be evaluating where if they've got a three to five-year time horizon, where that may lean them back into, OK, at least kicking the tires on tech or some of the other semiconductor spaces, where they're looking at the investments being made right now, infrastructure, really, to generate more capacity. And that's another story that we're going to be talking about later on.

But it's really looking three to five years out from now. And I think of course, right now, there are those recession fears that are certainly pertinent among any person that's putting their money to work. But it's how much of that money are you being able to put to work versus where you actually have to spend in order to just be able to maintain the necessities that take place for day in, day out purchases and things of the like.

JULIE HYMAN: Right, I mean, to be clear, this fund manager survey, these are big institutional investors moving around huge sums of money. So less affected, to some degree, by--

BRAD SMITH: Individuals.

JULIE HYMAN: Right, by the sort of individual concerns. But the stuff that they are saying are things that individual investors should certainly pay attention to. I mean, 92% of the participants in this survey say they expect profits to decline in the next year, which is perhaps an alarming number, but also in line with what we've been hearing. The profit estimates maybe still haven't come down too much.

If you look at the most crowded trades, interesting stuff here. Long US dollar-- again, perhaps not surprising, given the run that we've seen in the dollar. Still long oil and commodities-- interesting. Long ESG assets, even though I feel like ESG, sort of as a group, has maybe taken a little reputational hit recently. Short US treasuries, long growth stocks, to your point about tech, and long cash. So it's saying those are the most crowded trades right now, which is kind of interesting.

BRAD SMITH: But just to speak to what we're even seeing for companies that have reported that are looking across their earnings and what that output looks like over this next year, we're bound to see even more of these earnings revisions. We've already started to see some of those come out towards the tail end of this most recent quarter that was reported for second quarter.

And so now for Q3, where the brunt of that impact is being felt, if you are a company that was coming out and saying, you know what? We're just going to maintain or reiterate some of the guidance that we had already put out there and set forth, and we're not going to lift that or actually pull that back a little bit, that's going to be the wave that we see in this Q3 reports that start to roll out at the beginning of October, once we get into that earnings season. And that could be much more kind of detrimental to where we see some of these gap downs, at least in the share price reactions in the near term, too.

JULIE HYMAN: Yeah, one other point I wanted to pick up on that stood out to me with that long oil and commodities thing or-- that that's a crowded trade right now. We've got some banks that are cutting their oil price estimates, even as we have still a lot of investment in that space. Morgan Stanley, UBS, Goldman Sachs all cutting their estimates for the third quarter.

In the case of Morgan Stanley, they're taking it down to $98 a barrel. This is for Brent crude, by the way, not for WTI. So Brent sort of the more international standard. It looks like UBS is cutting it to $110. That's for the year end. And Goldman Sachs is cutting its forecast for next year, saying that we're going to see 125. So they're a little bit more sanguine here, even as we see some turmoil in between now and then.

BRAD SMITH: Yeah, and that 125 marker is a key benchmark as well. That's the area where a lot of economists are-- even those following the energy sector were saying that's where we would start to see some of that demand destruction actually take place if we did see a longer sustained period of or at 125.

And so with them pulling back some of this, that is good. That is good news. But at the same time, you would hope that also translates into lower prices for consumers, whether that's in the airfare prices that they're paying or whether that's in just their energy prices, that basic necessity that they're also needing to account for in their household spending.

JULIE HYMAN: Yeah, well, gasoline prices have been coming down. As we know, we have seen this long, long streak of those prices going lower.