JPMorgan strategist: Escalation of Middle East conflict will bring opportunities to increase allocation to risk assets

JPMorgan strategists believe that after the U.S. midterm elections, a further escalation of Middle East conflicts could weigh on stocks and push up oil prices in the short term, but the impact is likely to be brief and would present an opportunity to add exposure to risk assets. The team led by Mislav Matejka maintained its view that bond yields have peaked, and that economic resilience and strong earnings will support equities. The strategists said the recent rotation into defensive sectors is unlikely to last, and they favor a recovery in banks, industrials, commodities, and semiconductors. On investment ratings, they are overweight emerging markets and the eurozone, neutral on the U.S. market, and expect the S&P 500 to hit a new high before year-end.