"We do not lay down a sustained shock on oil": Freedom assessed the risks for the market due to the war

Freedom Broker maintained a "cautiously constructive" view of the U.S. market in the face of the unfolding U.S. war with Iran and increased anxiety on Wall Street. According to analysts, the surge in oil prices is unlikely to be long-lasting, although it will have time to affect inflation. The escalation in the Middle East will be short-lived, which means we should hardly expect a long rally in the energy sector, Freedom believes.

"On oil, we are not yet laying down a sustained shock. The view of our senior oil and gas analyst is that the current military escalation is likely to be short-lived, and hence the price surge in commodity markets is unlikely to be long-lasting," says Freedom Broker's tactical review "Iran factor gives reason for local correction" (available at Oninvest).

Additional pressure on quotations should also be exerted by OPEC+, which decided to increase production quotas from April, Freedom Broker writes. "In other words, for the stock market, this is more a factor of short-term nervousness and a jump in the risk premium than a basis for a prolonged rally in the energy sector," he believes.

The jump in oil prices and the growth of geopolitical premium increase demand for protective segments and make any release of macroeconomic data more sensitive for the US market, Freedom Broker analysts also note. Rising oil will almost certainly lead to higher gasoline prices in March, affecting inflation, they said. "But so far it doesn't look like a shock that could dramatically break nominal household spending or companies' investment plans. For equities, this does not mean getting out of risk at all costs, but rather a tighter selection of securities based on business quality, cash flow and ability to bear rising costs," Freedom Broker said in a note.

The first test for the market this week will be the business activity indicators: if they are stronger than forecasts, it will give an important signal to the market that the US economy is still holding up better than feared, according to Freedom Broker.

The most mixed release of the week will be the retail sales statistics, while Friday's employment report could be the sharpest reaction. The CrowdStrike report will test the resilience of the cybersecurity sector after the recent sell-off, while Broadcom and Marvell results will show whether broad momentum in AI infrastructure remains after Nvidia's strong report, Freedom analysts wrote. "It is these reports that will help us understand whether the rotation within the market, where capital is moving away from overheated stories to companies with more predictable earnings, will continue," the note said.

The base scenario of Freedom is the movement of S&P 500 in the range of 6700-6950 points. Trading on Friday, February 27, the index ended roughly in the middle of this corridor - at 6878.88 points.

"In this environment, we favor selective positioning. It is reasonable to hold the core in quality AI-infrastructure stories and in companies related to the US domestic investment cycle. The defensive layer is logically reinforced through staples, defense/industrial and pharma. A broad rebound in software and weaker consumer stocks should be treated with caution for the time being. The main task for this week is to react quickly if the market falls below 6700", - said the broker.

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