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Market News JPMorgan: High oil prices at $150 will not hit the U.S. economy, U.S. stocks are expected to return to record highs by the end of the year

JPMorgan: High oil prices at $150 will not hit the U.S. economy, U.S. stocks are expected to return to record highs by the end of the year

“Oil prices could surge even further, especially given the … situation in Europe and the Russia-Ukraine conflict. So, we wouldn’t be surprised (by the rise in oil prices),” said Marko Kolanovic, chief global market strategist at JPMorgan Chase & Co. said in a media program on Tuesday. "But it could be a brief spike and eventually, to some extent, oil prices will normalize."

2022-06-08
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Recently, investment banks led by Goldman Sachs have raised their forecasts for international oil prices as Asian demand heats up and Russian crude oil production is expected to decrease. The continued rise in oil prices has sounded the alarm for the global economic recovery. However, JPMorgan analysts pointed out that even if oil prices surge, the U.S. economy will not be seriously damaged, and U.S. stocks are expected to return to January highs by the end of this year.


“Oil prices could surge even further, especially given the ... the situation in Europe and the Russia-Ukraine conflict. So, we wouldn’t be surprised (to rise in oil prices),” said Marko Kolanovic, chief global market strategist at JPMorgan Chase & Co. said in a media program on Tuesday. "But it could be a brief spike and eventually, to some extent, oil prices will normalize."

WTI crude is currently trading near a three-month high, closing at $119.41 a barrel on Tuesday, up 0.77%. Brent crude closed at $120.57 on Tuesday.

As some countries in Asia lift coronavirus lockdowns, the door is open to higher crude demand and more upside for oil prices.

Citigroup and Goldman Sachs have raised their oil price forecasts for 2022 and 2023. Citi raised its Brent crude oil price forecast by $14 to $113 a barrel in the second quarter, and by $12 to $99 a barrel and $85 a barrel in the third and fourth quarters, due to tighter market balances. The average price in fiscal 2023 is $75 a barrel, $16 higher than the bank’s previous forecast.

Goldman Sachs also said in a June 6 report that oil prices need to rise further to normalize unsustainably low levels of global oil inventories. Brent crude oil prices are expected to be $140/bbl in the third quarter, $125/bbl previously expected, $130/bbl in the fourth quarter, $125/bbl previously expected, and $130/bbl in the first quarter of 2023 , previously expected to be 115 US dollars / barrel.

U.S. economy strong enough to handle high oil prices at $150

Kolanovich believes that the U.S. economy is strong enough to handle high oil prices of $150 a barrel.

“We think consumers can afford $130 or $135 because we experienced that from 2010 to 2014. ($150 oil) is basically at that level on an inflation-adjusted basis. So we think Consumers can afford it," Kolanovic said.

Kolanovich's baseline forecast is that both the U.S. and global economies will avoid recession. This view is contrary to that of JPMorgan Chase CEO Jamie Dimon. Dimon last week warned investors to prepare for an economic "hurricane." The U.S. economy is facing an unprecedented array of challenges, from monetary policy tightening to geopolitical conflict.

However, Kolanovic also believes it is crucial to be prepared for all possibilities. "We do expect some slowdown in U.S. economic growth, and no one is saying there's no problem," he said.

S&P 500 on track to return to all-time highs by year-end

In a recent report, Kolanovich predicted that the S&P 500 would end the year around 4,800, matching its all-time high set on Jan. 4. Currently, the benchmark is more than 13% below its all-time high.


Since the beginning of this year, Kolanovic has been optimistic and continued to recommend bullish stocks. He is a clear-cut bull among Wall Street investment banks.

He believes investors won't be hoarding cash all the time over the next 12 months, and if consumption, especially the services sector, performs as expected, investors will gradually return to the stock market.

Kolanovic remains the most bullish on the energy sector, a sector he has been bullish since 2019. He noted that despite higher prices, energy stocks are actually trading at lower price-to-earnings ratios than they were a year ago due to faster earnings growth.

In addition, he is bullish on small-cap and high-beta technology stocks that have been hit hard this year.

Article source: Financial Associated Press
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