A long war, expensive oil, weak growth and rising rates. Where to run away with capital?

There are more and more warnings from market experts that the war in the Middle East may drag on. This will prolong the period of high oil prices, provoking interest rate increases and declines in financial markets. Few market segments offer a safe haven today.

JPMorgan: Markets still seem carefree

Investors who assume that the war in Iran will end quickly are taking a huge risk – warn JPMorgan bank strategists, recalling historical examples of the impact of rising oil prices on the stock market.

Strategists from the largest American bank note that investors are still too calm and do not seem to notice the economic damage that a jump in energy prices may cause. Experts remind that there have been five oil shocks since the 1970s, four of which led to recession.

– Although some of the enthusiasm has evaporated from the most speculative and risky areas of the market, we still see carelessness in the markets – write JPMorgan strategists in a report for clients, quoted by Bloomberg.

Based on market history, they note that when commodity prices rose by 30 percent, the correlation between the S&P 500 index and oil prices became extremely negative, and the directions of stock and oil prices increasingly diverged.

Since the beginning of the war in Iran, stock market investors have been most afraid that the oil shock will trigger inflation. However, the biggest threat arising from the prolonged blockage of the Strait of Hormuz is economic tensions, in particular the hit to demand caused by rising oil prices, strategists say.

Their estimates show that a long-term increase in oil prices by $10 reduces GDP growth by 0.15–0.2 percentage points. If black gold prices remain at $110 by the end of the year, this could reduce earnings growth for S&P 500 companies by 2-5 percentage points.

In the face of these developments, JPMorgan this week lowered its year-end forecast for the S&P 500 Index from 7,500 points to 7,200 points. However, this still means about 9%. growth from current levels.

Amundi's Vincent Mortier: The war could last months

Pessimism about the prospects for resolving the conflict in Iran is quickly spreading in global markets, says Vincent Mortier, investment director at Amundi.

As noted by a representative of the largest asset management group in Europe, the market prices only change from Wednesday to Thursday attitudes changed from the belief that the war would be over within weeks to the expectation that it would last months.

– In the current situation, investing is not easy at all – admits Mortier.

BIS: The financial consequences may compound the economic consequences

A prolonged war in the Middle East threatens to raise interest rates and sell off in financial markets, which would only deepen the damage to the global economy, warns the Bank for International Settlements (BIS).

“If the conflict drags on, the financial consequences could compound the economic impact,” Hyun Song Shin, head of the economic research and monetary policy department at the BIS, said this week. – A sharp increase in interest rates could put pressure on high asset valuations. Rising government financing costs and the need for more borrowing could harm the sustainability of public finances, given that they are already under severe strain in many countries.

In turn, higher borrowing costs and a slowdown in the global economy could further increase tensions in the private debt market, from which investors have recently been trying to withdraw billions of dollars from the largest asset managers.

Jeff Gundlach: Rising yields herald a rate hike

Changes in yields in the US Treasury bond market signal that the Fed may raise interest rates, warns Jeffrey Gundlach, head of DoubleLine Capital and a renowned bond market investor on Wall Street.

He draws attention to the sharp increase in the yield of 2-year US treasury bonds, which reached 3.875%.

– The 2-year US Treasury yield rose 50 basis points in less than three weeks. This currently signals that a Fed rate hike is potentially imminent, Gundlach wrote on X.

This week, the Fed left interest rates unchanged as expected. The bond market veteran's views contrast with updated forecasts from Federal Reserve members themselves, who still expect one rate cut this year and another next year.

Investors also do not particularly believe in these forecasts. As data from CME Group show, markets estimate the probability of the Fed cutting rates this year at less than 10%. In turn, the chances that the central bank will raise rates at least once this year are approaching 20 percent.

Morgan Stanley: Asian stocks should be sold

Morgan Stanley strategists are recommending that investors take advantage of the rebound at the beginning of last week to sell Asian stocks, warning of potentially larger market declines due to the spike in energy prices.

Asian countries, which have a large share of emerging market funds, are extremely vulnerable to disruptions to Qatari liquefied natural gas (LNG) and crude oil supplies through the Strait of Hormuz.

– Asia is more vulnerable than other regions to prolonged disruptions in the supply of oil and liquefied natural gas. In the pessimistic scenario, we expect Asian markets to decline to our bear market levels, i.e. by 15-20%. below current valuations, Morgan Stanley strategists say in a report for clients.

As the bank emphasizes, disruptions in the supply of other important agricultural and industrial products, such as ammonia, urea, helium and sulfur, also pose a threat to the countries of the region. Additional pressure on Asian shares may come from the Fed refraining from cutting interest rates.

Bank of America: The consumer discretionary sector offers the best opportunity

In the current environment, consumer sector stocks offer the best buying opportunities, say strategists from Bank of America. In their opinion, these values ​​are not afraid of even the threat of higher inflation or economic slowdown.

– Consumer stocks are those where the stagflation scenario is already fully factored into prices. The lower-income consumer is something no one likes right now, but from a tactical standpoint, this sector probably offers the best buying opportunity, Michael Hartnett, chief strategist at Bank of America, said in an interview with Bloomberg Television.

At the same time, from a long-term perspective, the strategist currently recommends choosing international stocks outside the US and investing in commodities that are experiencing a long-term bull run in this inflationary decade.