Rising crude prices and growing geopolitical risks have started to pressure investor confidence, yet JPMorgan strategists say the broader market environment still supports using recent pullbacks as an opportunity to increase exposure to equities.
“The initial consensus by most was to buy the dip, but since the 2nd weekend of conflict many pundits started to make an about turn, and begun to argue that we are in for a prolonged war, looking for new highs in oil price, and drawing increasing parallels to 2022,” a team led by Mislav Matejka said in a note.
“That capitulation in sentiment, in our view, suggests that if one is selling now, the risk of being whipsawed is increasing,” they added.
Even with the recent volatility, the strategists noted that market positioning and technical indicators do not yet point to full investor capitulation. Relative strength indicators remain above oversold levels, and positioning data suggests investors are mainly trimming risk rather than aggressively building short positions.
They acknowledged that a sharper market adjustment could still occur if oil prices climb further. “The clearing event could be a relatively swift 2-3 days of selling, potentially coinciding with oil hitting 120-130$.”
Nevertheless, JPMorgan believes investors should focus on the bigger picture rather than short-term turbulence. The bank argues that the current escalation may not persist and that the broader macroeconomic environment remains supportive. The strategists reiterated that “post the initial bout of derisking, one should use the weakness to add.”
JPMorgan also challenged the view that higher oil prices will force central banks to tighten policy. “Mechanically oil prices going up means higher headline CPI, but we find it very hard to believe that oil price spikes driven by a geopolitical escalation, which is clearly growth bearish, warrants liquidity tightening by central banks.”
Despite this view, financial markets have begun to price in tighter policy since the escalation began. Expectations for the European Central Bank’s policy rate in 2026 have increased by more than 55 basis points, while traders have reduced their forecasts for Federal Reserve rate cuts.
The strategists believe those expectations could shift if the geopolitical shock ultimately slows economic activity. In that case, central banks would likely avoid tightening policy, and any temporary rise in inflation might be overlooked.
JPMorgan also highlighted that the global economy entered the current conflict from a position of relative strength, supported by solid economic momentum and healthy corporate earnings growth. Inflation expectations, wage pressures and services-sector inflation had also been moderating prior to the escalation, unlike the environment seen in 2022.
“These would typically be a key ingredient for any inflation spiral,” the strategists wrote.
Against this backdrop, JPMorgan continues to favor cyclical sectors such as capital goods, semiconductors and consumer cyclicals, along with exposure to emerging markets and the eurozone. The bank also expects a recovery in certain artificial intelligence-related stocks that have recently declined, even though earnings momentum in that segment is beginning to slow.
The strategists added that the rebound in hyperscalers and companies perceived as vulnerable to AI disruption could extend in the near term. Both groups have already recovered from recent lows, with hyperscalers outperforming by about 3% and “AI at risk” companies gaining roughly 12%.
However, they cautioned that the rally could eventually lose momentum, as earnings prospects for many of these businesses may come under pressure over time.