Two of Wall Street's biggest banks think a big buying opportunity is looming

By Jules Rimmer

Wall Street strategists' views coincide on market opportunity

Neither JPMorgan nor Morgan Stanley anticipates a protracted war in the Middle East and this informs their recommendations to buy into present weakness.

JPMorgan's strategists reckon it's too late to sell, and if you do, you run the risk of being "whipsawed." At the same time, Morgan Stanley is telling investors "the correction is mature in time and price" and while predicting a "wide chop," its constructive six-to-twelve-month view is still intact.

Both houses published their updated views on the market Monday and both teams, led by Mislav Matejka at JPMorgan and Mike Wilson at Morgan Stanley, share a similar opinion on the oil price (BRN00) that is currently dominating market headlines and determining the direction of risk assets. Matejka and Wilson both concede the possibility of further spikes in the oil price but doubt that it would be sustainable in the long term.

Wilson makes the point that oil-price spikes that end bullish market cycles like the one experienced since last April are typically 100% or more. This present run-up is more like 40% on a year-over-year basis. He also argues that the stock market correction has probably run its course with half of the Russell 3000 RUA index constituents down more than 20% from their 52-week highs. This figure for the S&P 500 SPX is 40%, he notes.

Wilson sees downside support at the 200-day moving average (around 6600 on the S&P 500) but even if that is broken in what he labels a "capitulatory event," he's of the opinion that highly durable technical support will be found between 6400-6500 on the index, which represents a price-to-earnings multiple for the next twelve months of about 20 times, and also suggests a long-term trendline.

JPMorgan takes a similar approach. The strategy note is titled, "Does oil supply shock really warrant central bank hikes?" and Matejka's answer is "no."

In the event of oil suddenly spiking to between $120 and $130, Matejka and team believe a "clearing event could be a relatively swift 2-3 days of selling." Its rationale is that if geopolitical events and the adverse oil price move lead to a recession it's unlikely central banks will be hiking. They will look through the inflation spike, Matejka argues.

Yes, mechanically oil drives inflation higher, but that is unlikely to lead to central banks tightening, in our view...there are plenty of differences to 2022... says JPMorgan

Matejka is careful to differentiate between current events and the oil-price shock of 2022 because that exacerbated an upward trend in inflation that was already triggered by the global pandemic. If there is further derisking then, JPMorgan's call is to "use the weakness to add" and their recommended sectors are capital goods, semiconductors and consumer cyclicals. Wilson also advises investors to "get your shopping list ready".

Moreover, JPMorgan observes that at the end of February MSCI World ex U.S. VXUS was up 11% for the year versus zero for the S&P 500. Half of that outperformance has been lost but once the present conflict dissipates and the dollar renews its softening trend, then non-U.S. stocks are likely to renew their previous trend, which favors the eurozone XX:SXXP and emerging markets EEM.

Both JPMorgan and Morgan Stanley believe underlying economic fundamentals were sound prior to the Iran attack. Matejka's research piece highlights "strong activity and earnings momentum" while Wilson is still hailing accelerating earnings momentum for the S&P 500 as the primary market driver while also highlighting fiscal support from the One Big Beautiful Bill Act as well as strength in the business cycle, evidenced by the best showing since 2022 of the combined Institute for Supply Management purchasing managers index.

Forward earnings growth re-accelerating this year, while it was decelerating last year.

-Jules Rimmer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-16-26 0640ET