Morgan Stanley: If oil prices continue to rise, it will have a significant impact on inflation and threaten the pace of interest rate cuts by the Federal Reserve
The ongoing war between Israel and Iran has led Morgan Stanley strategist Michael Wilson to state that, based on historical experience, sell-offs triggered by geopolitical events are generally short-lived and mild, while the trend of oil prices will determine whether market volatility persists. A weaker dollar and earnings growth are supporting U.S. stocks upward, but if oil prices continue to rise, it will have a significant impact on inflation and the economy, threatening the pace of interest rate cuts by the Federal Reserve, which may make stock investors feel nervous. However, he believes that oil prices must rise significantly to pose a bear market scenario, stating, "Oil prices need to rise to $120 per barrel to threaten the business cycle." "Historical geopolitical risk events have caused stock market volatility in the short term, but one month, three months, and twelve months after the events, the S&P 500 index has averaged gains of 2%, 3%, and 9%." Morgan Stanley noted that stock investors may have already prepared for U.S. intervention in the Iran war by reducing exposure, and that hedge demand increased in the days leading up to the airstrikes. Even though the stock market has only seen mild declines, most of the recent volatility has been concentrated in the oil market, with Brent crude oil surging over 20% in June, currently priced at around $77 per barrel
According to the Zhitong Finance APP, with the ongoing war between Israel and Iran, Morgan Stanley strategist Michael Wilson stated that based on historical experience, sell-offs triggered by geopolitical events are generally short-lived and moderate, while the trend of oil prices will determine whether market volatility persists. The weakening dollar and profit growth are supporting U.S. stocks upward, but if oil prices continue to rise, it will have a significant impact on inflation and the economy, threatening the pace of interest rate cuts by the Federal Reserve, which may make stock investors nervous. However, he believes that oil prices must rise significantly to pose a bear market scenario, stating, "Oil prices need to rise to $120 per barrel to threaten the business cycle."
"Past geopolitical risk events have caused stock market volatility in the short term, but one month, three months, and twelve months after the events, the S&P 500 index has averaged increases of 2%, 3%, and 9%," Morgan Stanley noted. Stock investors may have prepared for U.S. intervention in the Iran war by reducing exposure, and in the days leading up to the airstrikes, hedging demand has increased. Even if the stock market only experiences a moderate decline, most of the recent volatility has been concentrated in the oil market, with Brent crude futures surging over 20% in June, currently reported at about $77 per barrel
