Stock investors are underestimating the risk of war and focusing too much on a recession that's unlikely to happen, a Wall Street investment chief says

The head of Americas investing at a German asset manager said the risk of Russia ramping up its war against Ukraine should be the biggest worry for equity investors.

David Bianco, chief investment officer for the Americas at DWS Group, said in a note to clients that recession, high inflation, excessive valuation, and war are the four major long-time worries that usually cause bear markets.

We're concerned about all of these threats and stay cautious on the S&P 500 near-term, but rank our worries in this order: 1) escalating war, 2) European recession, and 3) non-commodity wage-spiral inflation.

The warning comes as a top Russian general on Friday made one of the first and most explicit descriptions of the country's plans for its war against Ukraine.

The war could lead to another surge in oil prices and a recession if it escalates. The price of West Texas Intermediate crude shot up to its highest level since 2008 after Russia invaded Ukraine. The surge quickly pushed US gas prices to near-record highs.

If there was a recession, we think it stems from Europe. The euro area relies heavily on Russian oil and other natural resources and is facing pressure from higher energy prices. The International Monetary Fund this week said the war was disrupting the global economy and slashed its forecast for euro-area growth to 2.8% from 3.9%.

As more evidence of Russian war atrocities emerges from Ukraine, the European Union has moved closer to a full Russian oil embargo. The price of crude on Friday was around $106 a barrel.

Bianco said it is unlikely that monetary policy tightening by the Federal Reserve will cause the US to go into recession this year or next. In March, inflation accelerated to 8.5%, and the Fed launched an aggressive cycle of interest rate hikes to cool it.

The preferred exposure is to banks and small-cap stocks. Banks can make money on the back of higher interest rates on loans, and small-cap stocks represent companies that are more exposed to economic developments.

Health Care is the most attractive sector, followed by Communications and Financials.