A big buying opportunity is looming, say two of Wall Street’s biggest banks

<p>JPMorgan’s strategists reckon that it’s too late to sell and that, if you do, you run the risk of being “whipsawed.” At the same time, Morgan Stanley is telling investors “the correction is mature in time and price” and, while predicting a “wide chop,” its constructive six- to 12-month view is still intact.</p>
<p>Both houses published their updated views on the market Monday, and both teams, led by Mislav Matejka at JPMorgan and Mike Wilson at Morgan Stanley, share a similar opinion on the oil price BRN00 that is currently dominating market headlines and determining the direction of risk assets. Matejka and Wilson concede the possibility of further spikes in the oil price but doubt that it would be sustainable in the long term.</p>
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<p>Wilson makes the point that oil-price spikes that end bullish market cycles like the one experienced since last April are typically 100% or more. This present run-up is more like 40% on a year-over-year basis. He also argues that the stock-market correction has probably run its course with half of the Russell 3000 index’s RUA constituents down more than 20% from their 52-week highs. This figure for the S&amp;P 500 SPX is 40%, he notes.</p>
<p>Wilson sees downside support at the 200-day moving average (around 6,600 on the S&amp;P 500), but, even if that is broken in what he labels a “capitulatory event,” he’s of the opinion that highly durable technical support will be found between 6,400 and 6,500 on the index, which represents a price-to-earnings multiple for the next 12 months of about 20, and also suggests a long-term trendline.</p>
<p>JPMorgan takes a similar approach. Its strategy note is titled, “Does oil supply shock really warrant central bank hikes?” and Matejka’s answer is no.</p>
<p>In the event of oil suddenly spiking to between $120 and $130, Matejka and team believe a “clearing event could be a relatively swift 2-3 days of selling.” Its rationale is that if geopolitical events and the adverse oil price move lead to a recession it’s unlikely central banks will be hiking. They will look through the inflation spike, Matejka argues.</p>
<p>Matejka is careful to differentiate between current events and the oil-price shock of 2022 because that exacerbated an upward trend in inflation that had already been triggered by the global pandemic. If there is further derisking then JPMorgan’s call is to “use the weakness to add,” and its recommended sectors are capital goods, semiconductors and consumer cyclicals. Wilson also advises investors to “get your shopping list ready.”</p>