JPMorgan Chase is recommending a new defensive playbook for investors as markets grapple with volatile oil prices.
In a new report, JPMorgan says investors are flocking to the old inflation playbook of buying energy and consumer staples in times of geopolitical risk.
The bank says the “tried-and-tested” path is becoming increasingly outdated as the play is largely dependent on the continuation of hostilities.
“Whereas energy and consumer staples stocks benefit from the perceived risk of inflation, they are also directly exposed to the conflict in Iran through commodity prices or input costs, respectively. That distinction matters if tensions with Iran escalate or remain unresolved.”
Instead, JPMorgan says investors should look into healthcare and utilities as the two sectors are insulated from energy price shocks. The bank says healthcare is primed for above-average earnings growth due to tech advancements and demand from an aging US population.
“Healthcare demand, by contrast, is largely insensitive to fuel prices altogether and remains mostly non‑cyclical. Innovation pipelines remain robust. And earnings growth is supported by demographics rather than discretionary spending. Now add on pricing power, and the sector’s long‑term earnings power has proven resilient across cycles.”
As for utilities, JPMorgan says the massive AI spending will continue to serve as a strong tailwind for the sector.
“Meanwhile, utilities have been benefitting from grid investment, electrification and data‑center demand. The energy needs of the tech sector haven’t gone away – perhaps that’s why the utilities sector, despite depreciating year-to-date, is selling off by less than half of the move seen in the consumer staples sector. Plus, with higher oil prices, utilities retain the flexibility to substitute natural gas for oil when economically advantageous.
And yet, the classically defensive sectors of healthcare and utilities continue to trade with broader risk sentiment – even as their earnings growth estimates top those of their ‘inflation playbook’ counterparts.”
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.