JPMorgan analyst Mislav Matejka says the recent geopolitical escalation related to Iran should be viewed by investors as an opening to increase equity exposure rather than an impetus to reduce positions. In a note published Monday, Matejka warned that dramatic events over the weekend will naturally prompt risk-off behaviour and short-term volatility, but he urged investors with horizons extending beyond the coming days and weeks to use any weakness to add holdings.
Matejka acknowledged the unpredictability of military conflicts, but added that the present escalation is "unlikely to stick for long given political calendars." He also argued that any surge in oil prices tied to the events would probably be temporary, since it is "likely to end up faded, on excess supply."
JPMorgan underscored several reasons it views the wider market backdrop as supportive. The firm cited resilient activity momentum, a "positive wealth effect" for consumers and continued strength in corporate capital expenditure as factors underpinning its constructive stance. On inflation, Matejka suggested that prices could remain relatively well behaved, helped by softening wage growth, easing services inflation and what the note described as a "deflationary AI impact."
The bank also pointed to valuation moves among specific groups of stocks. Both the so-called Mag-7 and the anti-AI cohorts have "derated dramatically," with the Mag-7 trading near 10-year relative price-to-earnings lows, the note said. While Matejka expects these groups to "stay laggards," he suggested the "absolute downside might be more limited from here."
Regionally, JPMorgan reiterated an overweight position on international and emerging markets, saying that "both the macro and the market narratives support these tilts." The firm maintained an overweight on Eurozone equities as well, citing improving earnings prospects and the anticipated effects of German fiscal stimulus on the region's outlook.
Implications for investors
- Short-term market volatility is expected as investors react to geopolitical developments.
- JPMorgan's medium-term stance favors adding equity exposure given positive fundamental indicators.
- The bank prefers international and emerging market equities and retains an overweight on the Eurozone.