JPMorgan says the recent surge in oil prices could create a shock that hits the everyday consumer the hardest.
In a new interview on CNBC, JPMorgan Asset Management portfolio manager Priya Misra says markets are largely treating the spike in oil as an inflation shock, but warns the implications could be broader.
“So I think the market, the rates market, is viewing this simply as an inflation shock globally… I would argue a geopolitical risk-driven rise in oil prices is a stagflationary shock. So I think the market’s focused on the inflation part. There’s the growth aspect as well. This is a tax on the consumer. The consumer, which has been actually doing OK, has been drawing down savings. And so I’m thinking there’s not a lot of buffer here. If oil prices stay high for longer, I think it’s going to be a drag on growth.”
At time of publishing, oil is trading at $95 per barrel, up more than 7% on the day.
To hedge against rising oil prices and stagflation risk, Misra recommends investing in Treasuries that mature between four and 52 weeks.
“There’s value being created in bonds. I think owning some short-duration Treasuries is actually a hedge against growth slowing down credit fears. Treasuries will give you liquidity, and they’ll sort of give you that hedge property as well.”
Misra also mentions another play in the bond market that could benefit long-term investors.
“We’re seeing inflows come into investment-grade bond funds. We’re seeing inflows. I think people are looking at all in yields, you know, five and a half, six percent, if you can go into high yield with lower sort of volatility. That’s why we’re seeing the inflows. When you talk about the data center, I would say AI-related supply. If it’s the hyperscalers, we actually like those business models.
We like the fact that they don’t have a lot of debt. So, I mean, software side, that’s why I think the market’s saying the AI winners versus losers. I think you have to do a lot of work there. Leverage is much higher. But the hyperscalers don’t have that much debt. So we’ve liked that sector.”
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