JPMorgan believes that the market can continue rallying despite fears that surging oil prices could trigger higher inflation and hurt equities.
The News
In a new Fox Business interview, JPMorgan Wealth Management chief investment strategist Phil Camporeale says investors should separate the signal from the noise amid growing concerns that the Fed could suddenly turn dovish amid hotter-than-expected inflation data in April.
According to Camporeale, the stock market looks healthy, powered by a strong US consumer base.
“The noise is yes, the Strait of Hormuz has been closed for 90 days, pushing oil prices up, pushing inflation up, pushing gas prices up. However, what’s going on under the hood, fundamentally, especially from consumers, who are really the backbone of the US economy, is really important.
And one of the things that we keep looking at is that the top 20% of earners in this country don’t do 20% of the spending. They do over half the spending in this country. Those folks only spend about 3% of their disposable income on gas, oil, and electricity. So that is what’s keeping this going.”
Camporeale also does not see the Fed hiking rates anytime soon, noting that monetary policy cannot influence geopolitical tensions.
“Hiking rates isn’t going to reopen the Strait of Hormuz. So, it doesn’t mean that if you hike rates, it’s going to control energy prices. Energy prices are what’s driving inflation. It’s a supply-side story, not a demand story.
The second thing is our labor market. We’re only producing about 27,000 jobs a month over the past 12 months. It is a no-hiring, no-firing economy. Wages are normal, and they’re not worried about a wage-price
spiral.
And then the third piece is that inflation is very slow-moving in the longer-term expectations. You might be asking people, ‘Do you think prices have gone up?’ Of course, they’re going to say yes, but what the Federal Reserve cares about is not inflation today. They care about inflation in the future, and those market measures seem to still be under control at this point.”
What It Means for Investors
Camporeale is clearly separating the signal from the noise, labeling consumer strength as the former and higher oil prices as the latter. The market appears to be moving in alignment with his bullish stance after printing a new record high at 7,539.
Earlier this month, Morgan Stanley CIO Mike Wilson abruptly raised his 12-month S&P 500 forecast to 8,300, driven by higher earnings estimates. Wilson noted that higher earnings estimates are fueled by the tech CapEx cycle, fiscal support, AI adoption and rolling recovery. Wilson’s call on a rolling recovery is key because it would enable the market to broaden out and move away from tech’s narrow leadership. It also aligns with Camporeale’s stance that wealthier Americans are powering the market higher with their spending capacity.
Camporeale also makes a contrarian call that the Fed won’t hike rates, believing that inflation is still manageable on a long-term basis. Data from the CME Fed Watch Tool shows that more than 99% of investors believe the Fed will hold rates at current levels at the next Federal Open Market Committee meeting.
Savvy investors always say, “Don’t fight the Fed.” If Camporeale is right that the consumer is bulletproof and the Fed stays put, it appears that Wilson’s 8,300 target for the S&P 500 is in the cards.
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.