JPMorgan Chase Says Several Key Sectors To Lead the Market in ‘Everything Rally’ Scenario: Report

Traders at JPMorgan Chase are laying out three scenarios for the US stock market that are tied to developments in the Middle East.

Starting with a “status quo” scenario, JPMorgan’s trading desk says stocks would witness some stability in the short term if tensions de-escalate on a limited basis and vessels passing through the Strait of Hormuz remain largely restricted, reports Bloomberg.

“It would be a short-lived win if Trump were to back away from his threats on Iranian infra, seemingly keeping Iran from targeting Saudi oil production while keeping the Houthis from closing access to the Red Sea.”

In a bearish case, JPMorgan outlines a scenario in which diplomacy fails along with an increase in military activity, triggering West Texas Intermediate crude (WTI) to spike between $125 and $150. In such an event, traders at the bank warn that the market will likely see a “puke everything” sell-off, with airlines being the most vulnerable, and firms in the energy, renewable and defense sectors would likely see demand.

“In equities, all things energy would need to be bought.” 

As for the bull case scenario, the traders predict an “everything rally” if tensions de-escalate or government policy shifts. The traders say small-cap stocks and technology shares will come out of the gates to lead the market, while homebuilders and retailers will outperform. They also see financials doing well amid an improved macro environment, with precious metals getting a boost from a weaker dollar. Also in the bullish scenario, traders see energy stocks taking a hit.

At time of writing, the S&P 500 is trading at 6,616, while oil is valued at $88.25 per barrel.

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