Rising oil prices and growing geopolitical tensions have begun to weaken investor sentiment in global markets. However, strategists at JPMorgan believe the broader market environment still supports using recent declines as an opportunity to increase exposure to equities.
In a note to clients, a team led by Mislav Matejka said that the initial reaction from many investors was to buy the market dip. Yet as the conflict continued into a second weekend, some analysts began to shift their outlook, warning of a prolonged war, higher oil prices, and potential comparisons with the market turmoil seen in 2022.
According to JPMorgan, this change in sentiment could actually increase the risk for investors who decide to sell now. The strategists noted that when sentiment turns sharply negative, markets can often reverse quickly, leaving investors vulnerable to sudden rebounds.
Despite increased volatility in recent sessions, the bank said technical indicators and positioning data do not yet suggest a full market capitulation. Relative strength indexes remain above oversold levels, and investor positioning shows risk reduction rather than widespread short selling.
The strategists added that markets could still experience a short but sharp sell-off if oil prices surge further. Such a clearing move could involve two or three days of heavy selling, potentially coinciding with oil prices rising to $120–$130 per barrel.
Even with this possibility, JPMorgan advises investors to look beyond short-term volatility. The bank believes the geopolitical escalation is unlikely to last long and that the overall macroeconomic environment remains supportive for equities. After the initial phase of risk reduction, the strategists recommend using market weakness to increase investment exposure.
JPMorgan also challenged the view that rising oil prices will force central banks to tighten monetary policy. While higher oil prices may push up headline inflation, the bank argues that inflation caused by geopolitical disruptions is typically linked to weaker economic growth, which would not normally justify tighter monetary policy.
Despite this view, markets have already begun adjusting expectations for central bank policy. Forecasts for the European Central Bank’s policy rate in 2026 have increased by more than 55 basis points, while traders have reduced expectations for Federal Reserve interest rate cuts.
JPMorgan believes these market expectations could change if the conflict slows global economic growth. In that scenario, central banks would likely avoid tightening policy, and any temporary increase in inflation could be viewed as short-lived.
The bank also highlighted that the global economy entered the conflict with relatively strong fundamentals, including solid economic activity and healthy corporate earnings growth. Inflation expectations, wage pressures, and services inflation had already been trending lower before the geopolitical escalation, unlike the environment seen in 2022.
According to the strategists, these factors reduce the likelihood of a sustained inflation spiral.
Given this backdrop, JPMorgan continues to recommend increasing exposure to cyclical sectors, including capital goods, semiconductors, and consumer discretionary stocks. The bank also favors opportunities in emerging markets and the eurozone, where economic momentum remains supportive.
The strategists also expect a rebound in some AI-related technology stocks that recently declined. Although earnings momentum in this sector has begun to slow, many companies could still benefit from improving investor sentiment in the near term.
Additionally, shares of major technology companies known as hyperscalers have already begun recovering from recent lows. According to JPMorgan, these stocks have risen about 3% relative to the market, while companies considered vulnerable to AI disruption have gained roughly 12%.
However, the bank warned that the current rebound may eventually lose momentum. Over time, earnings pressure could emerge for some of these companies as competitive and technological challenges continue to evolve.
