Morgan Stanley refused to change its bullish outlook on US stocks because of the Iran war

Morgan Stanley strategists believe that escalating conflict in Iran and the Middle East is unlikely to undermine their positive view on U.S. stocks unless there is a sharp and sustained jump in oil prices, Bloomberg writes.

On Monday, March 2, oil jumped the most in the last four years. In particular, US WTI crude oil rose by 7.7% to $72.2 per barrel. The world benchmark - Brent oil - after a 13% jump is trading at $78 per barrel (up 7% against the close on Friday, February 27).

"Unless oil prices rise to historically significant levels and remain high, recent events [in the Middle East] are unlikely to change our positive outlook for U.S. equities over the 6-12 month horizon," Morgan Stanley experts said in a note.

Historically, geopolitical risks have not led to prolonged volatility in the U.S. stock market, analysts led by Mike Wilson explained their position. In the note they referred to the average dynamics of the S&P 500 index after previous such events. According to Morgan Stanley calculations, one, six and twelve months after them, the S&P 500 index showed an average growth of 2%, 6% and 8% respectively, MarketWatch adds. Which events Morgan Stanley analysts used for the analysis, the publication does not specify.

Morgan Stanley attributes the negative scenario in the current situation solely to a sharp and prolonged rise in oil prices, which could jeopardize the strengthening business cycle. According to Mike Wilson, history shows that for such destructive effect two conditions should coincide: oil should rise in price by 75-100% in annual terms, and it should happen at the late stage of economic growth. Now, according to the analyst's estimates, such a situation is not observed in the market: "As we noted earlier, we believe we are at an early stage of the economic cycle as the recovery in corporate profits accelerates," MarketWatch quoted the analyst as saying.

On the back of improving corporate earnings and an expected acceleration in the U.S. economy, Wilson forecasts that the S&P 500, America's broad equity index, will reach the 7,800-point level by the end of the year. This estimate implies a 13% increase in the S&P 500 relative to the closing price on February 27. Since the beginning of the year, the index has added 0.5%.

The health care sector remains the preferred defensive pick amid low valuations, improving corporate earnings and easing regulatory risks, Wilson said. The S&P 500 Health Care sector index, which tracks the performance of U.S. health care stocks, has added 2.8% since the beginning of the year.

RBC strategist Lori Calvasina, in turn, cautioned against over-reliance on historical studies that recommend "buying on drawdown" after negative geopolitical news, Bloomberg reports. Pro-growth advocates are technically right, she said, but that logic is based on experience of more limited conflicts. "It's very difficult to look at geopolitical events in isolation when it comes to the stock market. Geopolitics is usually only part of the bigger picture," Calvasina noted.

Oil posted its biggest jump in four years on Monday, March 2, as traders assess the impact on markets of reduced shipping traffic through the Strait of Hormuz and the shutdown of Saudi Aramco, a major refinery in Saudi Arabia, due to a fire caused by falling debris from two Iranian drones.

European shares in trading on March 2 declined at the maximum rate since November - under pressure from securities of tourist, retail and luxury segments, Bloomberg notes.

Gold prices were above $5400 per ounce at moments on March 2, and in the currency market, the U.S. dollar strengthened against the euro, yen and Swiss franc.

Stocks in the U.S. at the very beginning of trading on March 2 fell by about 1%, but then slowed the rate of decline. The "technological" index Nasdaq Composite even went into plus for a while. Russell 2000 index of small and medium capitalization companies grew steadily.

This article was AI-translated and verified by a human editor