A surprise peace agreement pushed US oil down and widened market breadth, suggesting a potential shift from tech toward consumer and regional stocks.
New York, June 15 (Reuters) – The deal to end the war in the Middle East could bolster a broad range of stocks, as lower oil prices lift consumer spending and ease inflation and Treasury yields.
Investors note that cyclical, economically sensitive papers, including consumer companies, small-cap stocks, and securities in regions with greater dependence on energy, could benefit after the weekend announcement of an end to the U.S.–Iran war. This could shift market attention away from the dominant tech sector, which has recently driven growth on optimism about AI earnings.
The announcement could ease concerns about energy-driven inflation that could restrain economic growth. Oil prices in the U.S. fell to a three-month low on Monday after the deal envisaged the resumption of shipments through the Strait of Hormuz, an important energy-supply route, while the S&P 500 rose 1.7%, staying less than 1% from its early-month record high.
“A decrease in geopolitical tensions could ease some inflationary pressures and reduce Treasury yields.”
– Angelo Kourkafas
According to Robert Pavlik, senior portfolio manager at Dakota Wealth Management, lower oil prices could reduce fuel costs for consumers, making such companies as Home Depot, Target, and Macy’s potential beneficiaries. In the consumer discretionary sector the S&P 500 rose 1.9% in intraday trading, while the small-cap Russell 2000 gained about 0.9%.
“The end of the war could boost belief that consumers will have discretionary money to spend elsewhere,” said Pavlik.
“If our positive macro backdrop materializes – backed by strong earnings, stable inflation expectations, and easing geopolitical risks in the second half of the year – cyclical sectors will continue to have an edge over the market into year-end.”
– JPMorgan Strategists
EXPANSION INTO THE SECOND HALF OF THE YEAR?
Some analysts expect market breadth to widen across a broader set of stocks.
JPMorgan strategists said on Monday they expect expansion in the second half of the year.
“If our positive macro backdrop proves out – supported by solid earnings, stable inflation expectations, and easing geopolitical risks in the second half of the year – cyclical sectors should remain well positioned to lead into year-end,” the note said.
Morgan Stanley strategists also expect “relative strength” ahead for consumer discretionary goods, transportation, and regional bank stocks, where profitability trends are improving.
“Expansion into less overbought cyclicals continues,” Morgan Stanley said in a Monday note.
Shifts in the energy market could make regional markets more attractive, previously thought more vulnerable to oil-price rises than the U.S.
“While recent shocks highlighted the resilience of the U.S., a decline in energy pressures – oil around $80 a barrel – could be a catalyst for catch-up flows into non-U.S. markets.”
– Manish Kabra
ARE RATE CUTS NEEDED FOR EXPANSION?
Some investors believe that for a true market expansion, other factors are needed, notably changes in monetary policy; markets have shifted their expectations from rate cuts earlier in the year to possible increases as inflation linked to energy shocks rises.
It is expected that the Federal Reserve will hold rates at current levels this week.
“When you think about whether the rest of the market will outpace the AI story, in my view you need to see rate cuts priced in,” said Sonu Varghese, the global macro strategist at Carson Group.
Paul Nolte, senior wealth adviser and strategist at Murphy & Sylvest Wealth Management, who holds positions in financial and defensive stocks, added: “Technology as a sector has largely sucked the oxygen out of the market, and that makes it harder for other parts of the market to perform.”
In conclusion, analysts note that ending the conflict in the region could open up new opportunities for a broader set of markets, but all decisions will depend on the continued dynamics of monetary policy and changes in the global geopolitical landscape.