A geopolitical storm in the Middle East has ruthlessly shattered Wall Street's &#34;pro-cyclical&#34; consensus for 2026. In the face of soaring energy prices and asset liquidation, JP Morgan warns that bottom-fishing funds are still waiting for the &#34;starting gun&#34; of valuation, headlines, and time.
According to news from the Chase Trading Desk, on March 6, JP Morgan released its latest &#34;Global Market Strategy&#34; report. Following the U.S. and Israel's attack on Iran, geopolitical factors have instantly dominated global macro pricing, with the market bracing for potential inflation and macro shocks.
<h2>Energy Surge Shatters &#34;Pro-Cyclical&#34; Dream, Market Faces Cross-Asset Liquidation</h2>
The market's panic is fundamentally due to the original script being too crowded.
Entering 2026, Wall Street's trading consensus was highly unified: go long on global stocks, short on the dollar, go long on gold, short on crude oil, and engage in high-yield forex and interest rate arbitrage in emerging markets. This was a typical &#34;pro-cyclical&#34; combination.
However, reality dealt a heavy blow to the market. Commercial traffic in the Strait of Hormuz has nearly come to a standstill. Over the past week, natural gas prices surged by about 60%, and crude oil prices skyrocketed by about 29%.
This sudden energy crisis directly triggered a systemic deleveraging and large-scale liquidation of the aforementioned consensus positions. Funds were forced to reassess their risk exposures, and the strong rebound of the dollar once again confirmed its irreplaceable safe-haven status during times of panic.
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<h2>The Three &#34;M&#34;s Determining the Course of Conflict and the Tail Risk of $120</h2>
In the face of the crisis, JP Morgan's baseline assumption remains: this will only be a short-term conflict lasting several weeks.
The logic behind this is not complicated: constrained by ammunition stocks, logistical bottlenecks, and the high macro costs of closing the Strait of Hormuz, the conflict is unlikely to be sustained in the long term.
JP Morgan's geopolitical analysts pointed out incisively:
<blockquote>
&#34;At some point, resource risks will begin to outweigh increasingly marginalized military gains. The outcome of the conflict will ultimately depend on the three M's: Munitions, Markets, and Midterms.&#34;
</blockquote>
On a macro level, if Brent crude oil averages $80 per barrel in the first half of the year, this would only represent a mild shock. Models indicate it would only reduce global GDP growth by 0.6% and push CPI up by over 1%, insufficient to derail global economic expansion.
However, the risk lies in physical bottlenecks. Currently, onshore oil tankers and offshore floating storage capacity in the Gulf region are nearing their limits. If the U.S. Navy's escort and transit insurance plans are delayed, leading to an inability to resume navigation, the chain reaction of forced production halts will become apparent. Once storage capacity is exhausted, crude oil prices will face a tail risk of soaring to $100-$120 per barrel. In contrast, the recovery cycle for natural gas is longer, as restarting liquefaction plants takes several weeks.
<h2>What is Still Needed for Bottom-Fishing?</h2>
In the face of significant asset price corrections, when can investors re-enter the market? JP Morgan's answer is: wait for a &#34;circuit breaker.&#34;
To allow investors to buy the dip against the trend (fade the wash-out), the market must meet at least one of the following three conditions:
<ol>
<li>
Extreme valuations have been reached;
</li>
<li>
Substantial cooling news headlines have emerged;
</li>
<li>
A sufficiently long period has passed to provide a feedback loop for cooling the situation.
</li>
</ol>
However, the current situation is harsh. JPMorgan emphasizes:
<blockquote>
“So far, valuations do not appear attractive enough, the headlines keep us cautious, and there is still a long way to go before a cooling feedback loop is formed.”
</blockquote>
<h2>Cross-Asset Pricing Reconstruction: Betting on Gold, Preferring Korea, Avoiding Europe</h2>
While waiting for the geopolitical cooling signal, combined with the recent intense debate in the market about whether AI foundational models will squeeze software profits, JPMorgan has provided a reconstructed cross-asset trading logic:
<ul>
<li>
Commodities: If the situation cools, supported by both fundamentals and technicals, going long on gold is the highest probability and most attractive re-entry trade.
</li>
<li>
Equities (preferring Korea, avoiding Europe): The peak of concerns about AI in the stock market has passed, with capital expenditures for just the &#34;AI 30&#34; targets expected to reach $750 billion by the end of 2026. Structurally, there is optimism for underweighted low volatility assets (Low Vol), and software stocks are expected to outperform semiconductors in the U.S. and emerging markets. Among emerging markets, Korea is highly attractive due to its core position in the global AI memory chip supply chain. In contrast, Europe, as a major energy importer, will face risk premiums from fossil fuels that will severely compress corporate profits and erode real income, making it essential to avoid in the short term.
</li>
<li>
Interest Rates and Forex (rate cut expectations delayed): The inflation risks brought by energy have led the market to significantly delay the Fed's rate cut expectations. Currently, the market expects the first rate cut to wait until October, with a cumulative cut of only 50 basis points by July 2027. Therefore, JPMorgan has closed its position on &#34;shorting 2-year U.S. Treasuries&#34; and shifted to &#34;shorting 5-year U.S. Treasuries.&#34; In terms of forex, the medium-term outlook remains bearish on the U.S. dollar, but bullish on the Australian dollar (AUD) and Norwegian krone (NOK) related to the macro cycle, while remaining cautious on the euro due to energy pressures.
</li>
</ul>
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The Middle East conflict has triggered a surge in natural gas and oil prices, directly breaking through the market's crowded consensus for a "pro-cyclical" 2026, leading to a cross-asset liquidation. JPMorgan Chase pointed out that due to the pressures of "ammunition, market, and mid-term elections," the conflict is likely to be "short-lived," but investors must not blindly bottom-fish. The return of funds to the market requires the fulfillment of conditions such as extreme valuations, headlines of de-escalation, or sufficient time

- A geopolitical crisis in the Middle East has disrupted Wall Street's bullish consensus for 2026, with JPMorgan warning about the need for valuation catalysts before investment can resume.  
- Following attacks on Iran, geopolitical tensions have dominated macro pricing, causing significant asset liquidation, energy price spikes, and a strengthening dollar acting as a safe haven.  
- In response, JPMorgan suggests that investors should wait for extreme valuations, significant news, or time to cool market conditions before re-entering, while recommending investments in gold and Korean stocks, and avoiding Europe due to high energy risks.

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JPMorgan Chase

JP Morgan interprets the Middle East situation: The baseline scenario remains a "short-term conflict," but investors need "specific conditions" to re-enter