Transcript:
Caroline Woods
Forget the headlines for a minute, because what matters right now is where the money is actually going. Joining me to break that down is Mo Haghbin, managing director at Proshares. Mo, great to have you back at the desk.
Mo Haghbin
Thanks for having me.
Caroline Woods
So stocks are lower this week. We’ve had a lot of volatility tied to the war in Iran and also the spike in oil prices that we’ve been seeing. You know, when you take a look at flows, do you think that real fear is getting priced in or is this just repositioning?
Mo Haghbin
Yeah, sure. I mean, I think we start by thinking about where the economy was pre-war. Right. And my view is we were actually in a pretty good place fundamentally. The labor market was softer but not really stressed. If you think about inflation, it was largely under control. Core inflation, maybe services were a bit sticky, but overall break evens and expectations were that inflation was coming down.
Fast forward to, the conflict. And really I think what’s happened is investors looking at that situation and trying to assess whether this is going to be a prolonged issue or not. And to your point, I think it has had some effect on flows. So when I look at pre-war flows and postwar flows, what I see is much more defensiveness in the flows into ETFs.
So, for example, equity ETFs had had a record start to the year. More recently we see fixed income ETFs actually leading the charge. And within fixed income the shorter duration products getting more flows than the intermediate. And the long. The one thing that’s surprising, Carolyn, is commodities. You would expect, given the price of oil and what’s going on, that there be a significant amount of interest or flows into that category.
We’ve actually seen the opposite commodities lead all of 2025 and to start the year. But they’ve actually had outflows since the since the conflict broke out.
Caroline Woods
Even despite oil being up pretty I mean it’s down technically 3% this week, but it’s still trading just below $100 a barrel. So why do you think that is?
Mo Haghbin
Well, I think it’s because there’s not clarity around whether these elevated prices will persist. And I think that’s a really important factor for investors. Right now. Think about the short term versus the long term. The short term obviously there’s supply disruption. The Strait of Hormuz is effectively blocked or at least very difficult to go through. We have to understand that’s mostly supply to Asia, mostly supply to China, South Korea, Japan.
It’s not really a U.S. issue, but it will put pressure on global energy prices. The longer term story, I think is a little bit more interesting. And I don’t hear a lot of people talking about it. If Iran resolves itself in a shorter period of time and reintegrate back into the global economy, that actually is going to have the opposite effect on energy prices.
That will bring energy prices down. Iran has roughly 10% of the world reserves in oil, 18% and national natural gas. If that supply comes back online, you could see energy prices go the other way. So I think that’s a little bit of the conflict here. Are you bullish energy at this level or are you actually thinking about the longer term and saying this level of energy prices is probably not sustainable and it’s going to come down?
Caroline Woods
So it doesn’t seem like people are chasing the energy trade. That’s correct. Well, but they’re still invested. They’re just turning more cautious. So I mean, I guess what’s the takeaway then? It’s not that it seems like every day that the headlines are downbeat, but then you take a look at the S&P 500 and it’s still pretty close to all time highs, you know, despite seeing some red on the screen.
Caroline Woods
So what is the takeaway. Is this a market that you think potentially should be lower given given the headlines.
Mo Haghbin
It’s a you know, it’s a good question. And I think we’re all watching the developments and thinking about whether this is a regional issue that’s short horizon or is it going to be more of a global issue that’s longer duration? I think the base case right now is this is a regional issue and probably does not have a long length to it.
I think the conflicts potentially escalates and, energy prices cannot sustain these levels. Just just sticking on that for a second. You know, this $100 oil price is a psychological threshold. I think it’s a macro threshold, but it’s not really the level that I think creates a recessionary environment. So if it’s short lived, I think of the growth picture globally started at a really, really strong place.
And this this could just be another wall of worry that investors need to climb, as they have several other things like we saw with the tariff announcements, like we saw with the Venezuela situation. This could be another one of those.
Caroline Woods
Okay. And on that note, one thing that also could be surprising, but maybe not if this is short lived, is just the fact that the safety trade doesn’t seem to be trading like you would expect on a week, that the fed rate cut expectations are getting pushed out and oil is still higher, and an inflationary print came in hot.
Caroline Woods
Right? We’re not seeing money pile into gold. In fact, gold’s down 10% this week.
Mo Haghbin
That’s right.
Caroline Woods
Is the safety trade broken? What’s going on?
Mo Haghbin
Well, I think the safety trade might have moved. Right. So where gold historically was, maybe somewhere people went for safety or even longer duration bonds like think about TLT or some of these other longer duration products. I think diversification means something different now. And it’s good for investors to start thinking about alternatives to those safety trades. So real assets I think about infrastructure.
Infrastructure is up 10% on the year right. The markets are down slightly but infrastructure is up. So how do you actually build diversification. It hasn’t been a popular word for a while. You know people have always looked at that as maybe a penalty because markets were doing so well. And if I wasn’t invested in the S&P 500 while it was going to underperform, I think people are rethinking that.
People are saying with what’s going on around the world, how can I be more tactical? How can I be more nimble? And are there other ways to diversify outside of just long duration bonds? And boom, there you go.
Caroline Woods
Where is the real money going right now? You mentioned fixed income, but within equities it’s not going into energy. We know that certainly doesn’t seem like it’s going into the AI trade right now. Although maybe your data shows something different. Where is it going.
Mo Haghbin
So equity flows are about 80% off of the monthly pace we were seeing before the conflict started. And what I see is actually very small amount of that is going in the broad based indices. And a lot is going into a more narrow sector and subsector strategies more thematic and smart data strategies. And I think it’s actually reflective of the environment.
Broad based exposure has concentration. You obviously have sector bias is there. And people are becoming a bit more discerning and a bit more precise about what exposures they want in their portfolio, and looking for ways to move away from the broad based index.
Caroline Woods
So talk about some of those themes and some of the sectors that you’re in favor. Yeah.
Mo Haghbin
Now some cyclical, companies and some cyclical, factor exposures. So I think, mid-cap and value, they were actually starting to get a little bit of a run even before this. And I think that’s continuing. I still, still actually attractive, but it depends on how within the eight I trade, I think now there’s winners and losers.
So people are thinking about it more granularly.
Caroline Woods
Anything surprising that you’re seeing?
Mo Haghbin
I think the commodity piece is surprising, right? You know, you would expect that given the year that commodities had inflows and even the way it started the year with some of the energy shock that we’ve seen, wouldn’t you expect more flows to go there? We’ve seen the opposite. It’s actually outflows in the broader commodity. Products.
Caroline Woods
Will end if oil stays high and there’s recession implications. You wouldn’t expect to see money going into small cap and mid-cap because that area would be hit harder. So would you say that sentiment is actually still okay?
Mo Haghbin
I think so. I think if you look at where the market has had the most reaction, it’s been in the treasury market, it’s been in commodities. It’s been in the dollar. But credit spreads and equities have been fairly calm. To your point, the broad based index is still off maybe 5% from an all time high. We aren’t seeing the market pricing in a prolonged conflict or a situation where this shock would lead to a growth shock, which would lead to a recession.
Caroline Woods
But is the market right or wrong? Is the big question mark.
Mo Haghbin
My my view is that at the current moment that we’re talking, there is a pretty good chance that this becomes something the economy can absorb, right? Assuming it doesn’t escalate from here and become more of a global issue, this is something the economy can absorb. It was on a very, very strong footing before the war broke out. And globally, there’s a lot of good developments as it relates to production and productivity gains.
Labor market. I think this is, priced correctly by the market, where credit spreads and equities are looking past the short term conflict and thinking about the long term trend that we’re seeing in growth.
Caroline Woods
So then where does the market go from here? Let’s make the case that it can move higher from here.
Mo Haghbin
I think we can make the case that it moves higher from here. It depends on your horizon right. If you ask me.
Caroline Woods
Let’s see this year.
Mo Haghbin
This year Ken, can the market and higher this year from where it started. Absolutely.
Caroline Woods
Is that your base case.
Mo Haghbin
That’s my base case okay.
Caroline Woods
All right. We like to speed things up for the end of our interviews before we get to our rapid fire, this or that. I would love to give you one word and you give us one word to characterize that theme.
Mo Haghbin
Okay? Sentiment, mixed.
Caroline Woods
Economy, healthy markets.
Mo Haghbin
Nervous.
Caroline Woods
Risk.
Mo Haghbin
Good defensive.
Caroline Woods
Positioning.
Mo Haghbin
On the defensive.
Caroline Woods
All right. Time for our rapid fire game of this or that your first time playing. Are you ready?
Mo Haghbin
I’m ready.
Caroline Woods
Flows real de-risking or just rotation.
Mo Haghbin
Rotation.
Caroline Woods
Retail. Still buying dips or starting to pull back.
Mo Haghbin
Buying dips.
Caroline Woods
Dip buyers still in control or getting more selective?
Mo Haghbin
Still in control.
Caroline Woods
Volatility? Buy it or avoid it.
Mo Haghbin
So volatility.
Caroline Woods
Credit markets calm are starting to crack.
Mo Haghbin
Public credit markets fairly calm. Pockets of private credit not so much. That wasn’t a word by the way.
Caroline Woods
Safety trade broken or paused.
Mo Haghbin
Moving.
Caroline Woods
Bitcoin or gold. Bitcoin Bitcoin or cash?
Mo Haghbin
Cash.
Caroline Woods
Leadership still big tech or broadening out.
Mo Haghbin
Broadening out.
Caroline Woods
AI trade reloading or rolling over. Reloading small caps. Catch up. Trade or value. Trap.
Mo Haghbin
Value. Trap.
Caroline Woods
Fed. Done cutting or more on the way?
Mo Haghbin
More on the way.
Caroline Woods
Even despite your strong economic projections.
Mo Haghbin
I think we still have at least one cut this year. Okay.
Caroline Woods
I guess the fed did say that oil back to 80 or pushing toward 150.
Mo Haghbin
Back to 80.
Caroline Woods
Sentiment max pessimism are secretly bullish.
Mo Haghbin
Secretly bullish.
Caroline Woods
Risk broad market problem or just pockets of weakness.
Mo Haghbin
Pockets of weakness.
Caroline Woods
Inflation a real comeback or just an energy spike? Energy spike and not this or that, but quick answers one asset class sending a misleading signal right now.
Mo Haghbin
One more energy miners.
Caroline Woods
What’s quietly seeing inflows but no one is talking about yet.
Mo Haghbin
Dividend growers.
Caroline Woods
And finally, something we didn’t talk about. Election risk. Is it priced in or are we not seeing anything yet priced in. All right. We’ll leave it there. Mo I always appreciate your insights. Thanks so much for playing.
Mo Haghbin
Great to.
Caroline Woods
Be here. I appreciate it. That’s Mo Haghbin managing director at Proshares AG.
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