The fragile truce in the Middle East and suspended shipping in the Strait of Hormuz still pose a threat, but investment experts are increasingly talking about the opportunities opening up on the market.
JPMorgan: Oil Prices May Test War Highs Again
JPMorgan analysts warn that oil prices could return to testing the peaks seen at the height of the Iran war if the recovery of cargo flows through the Strait of Hormuz drags on into July. Markets currently expect oil flows to be half restored by May and fully restored by June.
“A much slower recovery of flows to pre-war levels until July could add $15 to $20 a barrel to the price,” JPMorgan notes.
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On Friday, a barrel of Brent crude oil cost approximately USD 95. At the height of the war, the price of a barrel of this grade jumped to over $119. The bank's analysts remind that on Thursday evening, nearly 350 ships intended for the transport of energy resources remained in the Persian Gulf. About 240 of them were already loaded.
JPMorgan CEO: Losses on private loans will be higher
Investors are also concerned about the situation on non-public markets, where private debt funds are forced to limit disbursements to clients, which was provoked by several high-profile cases of insolvency of large companies borrowing from the funds. This sowed fears that problems would spread to the private debt market, valued at USD 1.8 trillion.
Losses from bad loans to heavily indebted companies will be much greater than many realize, warns JPMorgan CEO Jamie Dimon.
“That's because lending standards have slowly but surely deteriorated virtually everywhere,” the head of America's largest bank wrote this week in his annual letter to shareholders.
Weakened lending standards, according to Jamie Dimon, manifest themselves in aggressive, optimistic assumptions about future performance when assessing the credibility of borrowers, in weaker financial covenants and more frequent deferrals of loan payments (PIK, payment in kind). The volume of loans granted by the non-bank sector has increased rapidly over the last decade as tighter banking regulations forced banking institutions to withdraw from parts of the lending market.
– There has been no credit recession in the sector for a long time, and some people seem to think it will never come again – says Jamie Dimon.
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UBS: Higher oil prices may delay rate cuts
UBS strategists lowered theirs forecasts for the S&P 500 index at the end of the year from 7,700 to 7,500 points, and for the middle of the year from 7,300 to 7,000 points, arguing this with higher oil prices, which threaten economic growth and may delay interest rate cuts by the US central bank
“Slightly weaker expectations for energy-intensive sectors and higher-end consumer goods are offset by stronger forecasts for the energy sector and further potential for microprocessors resulting from demand for artificial intelligence,” UBS experts comment.
In the baseline scenario, UBS expects the conflict in the Middle East to subside in the coming weeks and energy flows to gradually resume. Experts admit, however, that the reconstruction of the energy infrastructure damaged during the war will take time, which will most likely mean continued higher energy prices. Due to higher oil prices and inflation, UBS postponed the Fed's interest rate cut forecast from September to December.
The bank still sees U.S. stocks as attractive, expecting that once the war ends, the overseas stock market will be driven by solid corporate earnings, favorable Fed policy and the monetization of artificial intelligence.
Goldman Sachs: A Generational Opportunity to Buy Tech Stocks
American technology stocks are going through their worst period in half a century compared to the broader market, which has created a rare, once every few decades, opportunity to profitably buy shares from this troubled sector, argue strategists from Goldman Sachs.
– The American stock market, in relative terms, no longer seems so expensive. Corporate earnings remained strong while share prices corrected, notes Peter Oppenheimer, chief equity strategist at Goldman Sachs.
The bank's analysts pay attention to the PEG ratio, which assesses the attractiveness of share valuation in relation to the price/earnings-to-growth rate. The PEG ratio for US tech stocks is currently lower than global markets, which is another positive sign for investors looking for market opportunities.
“Tech stocks' PEG ratio reflects deep pessimism that could suggest future earnings will be much weaker; the ratio is as low as it was at the bottom after the burst of the tech bubble in 2003-2005,” say strategists at Goldman Sachs.
These securities fell due to investor concerns about gigantic capital expenditures on artificial intelligence and the impact of AI tools on productivity, which hit the valuations of software companies. According to the bank's strategists, the technology sector has been penalized disproportionately, even though fundamentals justify higher valuations.
“Globally, the P/E ratio for the IT sector is lower than for the upstream, primary goods and industrials sectors. Unlike other industries, the premium in the valuation of the IT sector has dropped sharply compared to the historical average,” say experts from Goldman Sachs. They add that the return on capital in technology companies remains high, and earnings forecasts are revised upwards to a greater extent than in other sectors.
Unrest in the Middle East provides an additional argument for buying securities of technology companies whose cash flows are not so sensitive to fluctuations in the economic growth rate.
Fundstrat CEO: The reward-to-risk ratio is quite favorable for stocks
This week's ceasefire between the US and Iran, although fragile, means the stock market has already hit a hard bottom, says investment manager Tom Lee, founder of Fundstrat. He is also encouraged by the fact that the main S&P 500 index has risen above its 200-day moving average.
– I believe that the risk-reward ratio is currently quite favorable for shares – says the analyst.
The expert, closely watched on Wall Street and known for his optimistic market forecasts, assumes that the S&P 500 index will ultimately increase to 7,700 points, which means an increase potential of approximately 13%. relative to the current level.
Tom Lee said in an interview for CNBC: – Investors who have cashed in on their investments must start wondering to what extent the war is actually a crisis. Initially, people focus on the negatives, but then they need to start thinking about the possibilities.
Although Americans have been scared by rising gasoline prices at gas stations, the analyst is not at all afraid of a possible recession in the US and its negative impact on financial markets.
– Investors must realize that war spending is approximately USD 30 billion, and will ultimately increase to perhaps USD 100 billion per month. This is a stimulus that will stimulate the economy. Each $10 increase in the price of oil represents a blow to consumers of approximately $4 billion per month. Therefore, monthly military spending far outweighs the effects of more expensive oil, concludes Fundstrat's founder.
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