Either way, the damage has been done to valuations.
As geopolitical tensions ripple through energy markets in the spring of 2026, JPMorgan strategists are urging investors to resist the reflex of 2022 — the assumption that conflict automatically begets sustained inflation and aggressive central bank tightening. Led by Mislav Matejka, the team sees markets overpricing rate hike risk, and in that miscalculation, a quiet opportunity: defensive stocks, long neglected in the chase for AI-driven growth, now offer rare value regardless of which direction yields ultimately travel. It is a reminder that the most durable investments are often found not in the crowd's gaze, but in what it has chosen to overlook.
- Markets are reliving the trauma of 2022, pricing in aggressive rate hikes in response to an Iran-linked energy shock — but JPMorgan believes this reflex is miscalibrated and the comparison is flawed.
- Defensive equities — consumer staples, utilities, insurers — have been quietly punished for months, left behind as capital flooded into AI and growth names, pushing their valuations to 18-year lows relative to cyclical peers.
- Rising bond yields compounded the damage, stripping defensives of their bond-substitute appeal and accelerating their underperformance in a market rewarding momentum over stability.
- JPMorgan expects geopolitical resolution within 6–12 months, weakening wage pressures, falling oil prices, and lower yields — conditions that would vindicate a rotation into defensive names.
- The strategic case is unusually resilient: whether yields climb toward 5% or retreat, beaten-down defensives are positioned to outperform, having already absorbed the worst of the repricing.
The markets are behaving as if 2022 is repeating itself — spooked by an energy shock tied to conflict with Iran and bracing for a wave of central bank rate increases. JPMorgan's strategists, led by Mislav Matejka, are pushing back. They argue that investors are overestimating how aggressively the Federal Reserve and its peers will tighten policy, and that this miscalculation has quietly created an opening in a corner of the market most people have stopped watching.
The team's core argument is that this moment is not 2022. Wage growth in the United States is already softening, making a wage-price spiral unlikely. Within six to twelve months, JPMorgan expects the parties involved in the current conflict to move toward resolution — bringing oil prices and bond yields down with them. Markets currently price one Fed rate hike by March 2027 and two ECB cuts before year's end. JPMorgan believes the former is too aggressive and the latter closer to reality.
What makes this consequential is where the mispricing has landed: on defensive stocks. Consumer staples, utilities, insurance companies, and select industrials have underperformed for months as capital chased artificial intelligence and growth. A Goldman Sachs basket tracking economically sensitive stocks now trades at valuations not seen in eighteen years relative to defensives. Rising yields made the situation worse, stripping these stocks of their bond-substitute appeal.
Matejka's argument carries an unusual elegance — it works in either direction. If yields push higher toward five percent, defensives may finally decouple from their rate sensitivity and recover on the strength of their beaten-down valuations. If yields fall as JPMorgan expects, defensives benefit directly, just as they did before the Iran conflict disrupted markets. The damage to their prices is already done. The opportunity, the strategists argue, is already there.
Morgan Stanley's Mike Wilson reinforces the theme from a different vantage point, suggesting that lower yields and cheaper oil could finally broaden market leadership beyond the narrow band of technology giants. The critical distinction, Wilson notes, is whether rising rates reflect genuine economic growth or a policy pivot — equities can absorb the former, but not the latter. Together, both views point toward the same conclusion: the market has mispriced the shock, and the stocks it has punished most may be the ones best positioned for what comes next.
The markets are bracing for a wave of interest rate increases, spooked by the same geopolitical playbook that unfolded after Russia invaded Ukraine in 2022. But JPMorgan's strategists, led by Mislav Matejka, are pushing back against this narrative. They argue that investors are overestimating how aggressively central banks will tighten policy in response to the current energy shock tied to conflict with Iran. That miscalculation, they say, has created an opening—one that favors the kinds of stocks most people have been ignoring.
The case rests on a simple observation: this moment is not 2022. Yes, energy prices have spiked. Yes, inflation concerns are real. But the JPMorgan team expects that within six to twelve months, the parties involved will find a way toward resolution. When they do, bond yields will fall and oil prices will retreat. Wage growth is already showing signs of weakness in the United States, which would make it harder for a wage-price spiral to take hold. The result is that stagflation—the toxic combination of stagnant growth and rising prices—is unlikely to be the dominant outcome in the second half of the year. The Federal Reserve is currently priced by markets to raise rates once by March 2027, while the European Central Bank is expected to cut twice before year's end. JPMorgan thinks the market is getting ahead of itself.
This matters because defensive stocks—the kind that don't swing wildly with economic cycles—have been left behind. Consumer staples, utilities, insurance companies, and certain industrial names have suffered through months of underperformance as investors chased artificial intelligence and growth. A Goldman Sachs basket tracking economically sensitive stocks is now trading at valuations not seen in eighteen years relative to their defensive counterparts. The recent surge in global bond yields made defensive stocks even less appealing, since they had been serving as a substitute for bonds when yields were low. But that dynamic is about to shift.
Matejka's argument is elegant in its flexibility. If yields rise further—say, pushing ten-year Treasury yields toward five percent—defensive stocks could break their recent pattern of moving in lockstep with rates and actually perform well, especially given how badly they have been beaten down. Alternatively, if the recent spike in yields reverses and rates fall back down, defensive stocks would benefit from that move too, just as they did during the period of outperformance that preceded the Iran conflict. Either way, the damage has been done to valuations. The opportunity exists.
Morgan Stanley's Mike Wilson echoes the theme from a different angle. Lower yields and cheaper oil could finally break the stranglehold that a narrow group of technology companies has maintained over market leadership. Wilson sees profit recovery broadening across the market, which means higher yields don't have to be a threat to stocks as long as that earnings growth continues. The key distinction, he notes, is whether rising rates are driven by stronger economic growth or by a shift in central bank policy. Growth-driven rate increases are something equities can live with. Policy-driven ones are not.
The strategic implication is clear: the market has mispriced both the severity of the geopolitical shock and the likely policy response. Defensive stocks have been punished for months. They are cheap. And they are positioned to win regardless of which way yields move next. For investors who have been locked out of the technology rally and are searching for a way back into the market, this is the argument that matters.
Citas Notables
The market has mispriced both the severity of the geopolitical shock and the likely policy response.— JPMorgan strategists (paraphrased)
Equities can tolerate higher yields as long as growth is the main driver of those increases, not a shift in central bank policy.— Mike Wilson, Morgan Stanley (paraphrased)
La Conversación del Hearth Otra perspectiva de la historia
Why does JPMorgan think this geopolitical moment is fundamentally different from 2022?
Because the underlying economic conditions are different. In 2022, the shock hit an economy that was already running hot, with tight labor markets and wage pressures building. Now, wage growth is already weakening. That matters because it breaks the chain that leads to stagflation.
But energy prices are spiking. Doesn't that automatically force central banks to raise rates?
Not necessarily. JPMorgan's view is that the conflict will be resolved within six to twelve months, which means the energy shock is temporary. If oil prices fall back down, the inflation pressure eases, and central banks don't need to tighten as much as the market is currently pricing in.
So the real opportunity is in stocks that have been left behind?
Exactly. Defensive stocks have underperformed for months because investors were worried about rate hikes. If those rate hikes don't materialize, or if they're smaller than expected, these stocks suddenly look cheap relative to what they should be worth.
What if yields actually do rise to five percent?
Then defensive stocks could still win. They've been so beaten down that even in a higher-yield environment, they could outperform. They're not priced for success anymore—they're priced for disaster.
Is there a scenario where JPMorgan is wrong?
Yes. If the conflict escalates and energy prices stay elevated, if wage pressures don't ease, or if central banks decide to be more aggressive than expected. But JPMorgan is betting that the market is overestimating the probability of that outcome.
What does Morgan Stanley add to this picture?
Wilson's point is that if yields fall and oil prices come down, you'd see a broadening of market leadership beyond just technology stocks. Profit growth is spreading across the market, which means there's room for other sectors to lead. That's the real prize—not just defensive stocks doing well, but the entire market becoming less concentrated.