International Oil Prices Plunge, Pushing U.S. Stocks Higher; Morgan Stanley Chief: Market Adjustment Nearing End

On Tuesday morning, international oil prices fell sharply amid expectations that transportation disruptions in the Strait of Hormuz may ease and that multiple countries might release more crude oil reserves.

As oil prices declined, concerns about inflation also eased, with U.S. stocks and U.S. bonds both strengthening, leading to a higher open in Asian stock markets on Tuesday—Nikkei 225 opened up 0.9%. South Korea’s KOSPI rose 2.9%.

Morgan Stanley’s chief strategist believes that, although there are no clear signs of an end to the war, the U.S. stock market correction may be nearing its end.

Have investor concerns about the war eased?

On Monday night Beijing time, Brent crude futures once fell more than 3%, dropping below $100 per barrel; WTI crude futures also fell over 5%, reaching $91 per barrel.

However, on Tuesday morning, international oil prices rebounded slightly. As of 8 a.m. Beijing time, Brent crude futures rose by 2% intraday to $102.22 per barrel, returning above $100. WTI crude futures increased over 2% to $95.47 per barrel.

The movement in international oil prices is clearly closely linked to the Iran conflict. On Sunday, U.S. officials revealed that the Pentagon estimates the Iran war could take 4 to 6 weeks to complete, and the conflict has now entered its third week.

Yaderni Research reported on Monday that, despite escalating conflicts in the Middle East, financial markets remain relatively calm, indicating that investors are expecting the war to end soon but are cautious about further deterioration of the situation.

The firm stated, “Overall, energy and financial markets are responding quite calmly to the conflict in the Middle East.”

It also noted that investors seem to believe the war will end quickly.

IEA emphasizes further reserve releases possible

After announcing the largest-ever release of 400 million barrels from strategic reserves, the International Energy Agency (IEA) stated on Monday that more oil reserves could still be mobilized if needed.

IEA Executive Director Fatih Birol said in a televised statement that the ongoing emergency release would only reduce IEA reserves by about 20%.

“We still have over 1.4 billion barrels in reserve, which means we can take further action if necessary in the future.”

Is the U.S. stock market correction nearing its end?

Although the significant volatility caused by the war has not yet subsided, Morgan Stanley’s chief U.S. equity strategist Michael Wilson believes the current correction in U.S. stocks appears to be nearing its conclusion.

On Monday, Wilson issued a report stating that, while a slight decline in U.S. stocks cannot be ruled out in the short term, “we still believe this correction is close to ending, both in terms of time and price.”

He pointed out that the correction has “matured,” with 50% of stocks in the Russell 3000 down at least 20% from their 52-week highs.

He also said that market performance “far exceeds the current obvious risks,” and added that this year’s stock movements are similar to early warning signals seen last year. However, he expects the decline to be “significantly smaller than last year,” though volatility may persist due to geopolitical tensions.

Morgan Stanley indicated that the U.S. stock market could experience significant fluctuations in the coming weeks—if the 200-day moving average is broken, the S&P 500 could find support between 6,400 and 6,500, with resistance around 6,850.

Wilson also mentioned that Morgan Stanley is taking profits on small-cap stocks and has temporarily adjusted the sector’s rating to neutral.

Despite short-term uncertainties, Morgan Stanley emphasizes that the positive outlook for U.S. stocks over the next 6 to 12 months remains unchanged.

(Source: Cailian Press)