Oil prices may fall toward $70! JPMorgan: Global stock market rotation will restart

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Oil prices continue to fall, which may open up new upside space for global stock markets.

Karen Ward, Chief Market Strategist for EMEA at J.P. Morgan Asset Management, stated that as the US and Iran reach an agreement improving the outlook for crude oil supply, the ongoing decline in oil prices could reignite previously interrupted market rotation caused by the Iran situation, bringing a "huge tailwind" to the stock market. Ward expects that in the coming weeks, oil prices may further drop to $70 per barrel, citing increased global crude supply from the agreement as the reason.

According to CCTV News, on the 15th local time, Pakistan's Prime Minister Shehbaz announced that after intensive negotiations, the US and Iran have reached a peace agreement. Both the US and Iran subsequently confirmed the news. The official signing ceremony will be held in Switzerland on June 19. Affected by this news, Brent crude fell by more than 5% on Monday, dropping below $83 per barrel.

Currently, expectations for declining oil prices have quickly transmitted to financial markets, with stocks and bonds climbing simultaneously, and expectations for central bank rate cuts warming up—despite the European Central Bank having just raised rates by 25 basis points last week due to inflationary pressures. Ward pointed out that the cross-sector and cross-region market rotation previously interrupted by the Iran situation is restarting.

Falling Oil Prices Reshape Market Expectations: From Supply-driven to Asset Rotation

Ward believes that the driving force behind this round of declining oil prices is not limited to the Iran situation. She pointed out that cohesion within OPEC is gradually weakening, and Gulf states may be inclined to accelerate monetization of reserves at the current price level, further expanding global crude supply.

However, the market is not entirely optimistic. According to reports, some traders and analysts remain cautious, citing unclear details of the agreement and practical obstacles to reopening shipping through the Strait of Hormuz.

Ward said: "The entire rotation we saw last year—whether by sector or region—came to a sudden halt on February 27. Some thought the market had fully digested the impact of the Iran conflict, but that's not the case; market narratives have completely changed. Now, everything is reversing, and the expansion of rotation and market breadth is returning."

The suppressive effect of falling oil prices on inflation may prompt major central banks to re-examine their rate paths. Ward pointed out that if oil prices continue to decline, it will open the door for rate cuts by central banks, thus providing additional support for stock valuations.

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