JPMorgan traders say stocks are still expected to perform well in the near term despite the collapse of U.S.-Iran talks over the weekend. The desk reiterated its tactical bullish stance on the market, noting: “As talks resume, we believe it is most likely that the two-week ceasefire will be extended or an agreement reached before the deadline.” “The main drivers for this view are measures to normalize the (Strait of Hormuz) supply chain crisis. This is combined with (i) a resilient macro situation based on the strength of household and corporate balance sheets with potential tailwinds from the (One Big Beautiful Bill Act) and labor productivity, (ii) a solid earnings outlook, and (iii) a tariff regime where net effective tariffs continue to trend lower,” the traders added. In other words, Monday’s early decline could be a buying opportunity. Futures, which track the Dow Jones Industrial Average, fell about 400 points, or 0.9%. S&P 500 futures and Nasdaq 100 futures each fell 0.5%. Still, JPMorgan’s trading desk acknowledges that there are risks to the market stance, including: Dispute resolution failure and war escalating “lower-than-expected earnings and/or lack of guidance from mega-cap/large-cap companies.” Bond yields soar due to expectations of higher inflation. Oil prices soared on Monday after the United States announced it would block Iranian ports following the collapse of peace talks. West Texas Intermediate rose 7% to trade above $100 a barrel. What to buy Trading desks favor small-cap stocks, along with tech and cyclical stocks. Traders added that following conversations with customers, many believe the Magnificent Seven – a group that includes Metaplatform, Amazon, Apple, Microsoft, Nvidia, Alphabet and Tesla – is “too cheap”. The entire group, excluding Tesla, trades at between 20 and 29 times forward earnings, according to FactSet data. Elon Musk’s electric car maker has a multiple of 163x.
