Key insights
- JPMorgan argues that the current macro environment differs significantly from 2022, despite rising oil prices and geopolitical tensions. Key differences include moderating wage growth, central banks already at neutral rates, and weaker consumer spending. While acknowledging potential inflationary pressures, JPMorgan suggests early rate hikes by the ECB or BoE would be a policy mistake. This analysis provides a moderately bullish signal for US equities, suggesting the market is less vulnerable to a 2022-style selloff.
Investing.com -- As oil prices surge and geopolitical anxiety mounts following the US/Israel-Iran conflict, investors are increasingly drawing parallels to 2022 — the year Russia’s invasion of Ukraine triggered an energy shock, a wage-price spiral, and one of the worst selloffs in a generation.
However, pushed back on that comparison, JPMorgan’s equity strategy team argues the macro backdrop today is meaningfully different across several key dimensions.
The most important distinction, in their view, is wages. In 2022, wage growth was accelerating sharply in the aftermath of Covid-era labor market distortions — a dynamic that fed stubbornly elevated inflation and forced central banks into an aggressive tightening cycle.
"This is not the case at present, where most wage data has been trending lower," strategists led by Mislav Matejka said, adding that it is hard to see a wages-prices stagflationary spiral taking hold in the current environment.
Central bank positioning also looks different. Heading into 2022, the Federal Reserve and the European Central Bank (ECB) had policy rates far below neutral and were still treating inflation as transitory.
Today, rates are broadly in line with historical norms, and the yield curve has returned to its historical average after years of inversion. Rate markets have moved to price in hikes from the ECB and Bank of England since the conflict began, but JPMorgan believes that "any early hikes would likely be viewed as a policy mistake."
On the consumer side, 2022 saw strong pent-up demand and robust Covid cash balances, making spending resilient even as prices rose. Corporate pricing power was also strong, allowing companies to pass on higher input costs.
Nowadays, "that might not be the case," the strategists said.
Furthermore, activity levels were weaker four years ago. Eurozone growth momentum entered 2022 at over 4%; it stands at around 1% now. Europe’s energy infrastructure is also better prepared, with LNG terminal capacity roughly doubled since 2021 and fewer of the acute supply constraints — low coal storage, offline French nuclear — that amplified the 2022 shock.
Finally, JPMorgan flagged AI as a potentially crucial wildcard. Growing anxiety about AI’s impact on jobs, combined with already-soft labor market sentiment, points more toward a deflationary than a stagflationary outcome. This marks "one of the crucial differences between a stagflation and a deflation narrative taking hold," the team wrote.
On equities, the strategists observed that European stocks have already fallen 11% on a gas price move roughly one-quarter the size of 2022’s spike, suggesting markets are pricing in considerably more pessimism relative to the underlying energy shock than they did four years ago.