JP Morgan’s stock guru says oil won’t hurt stocks until it hits $80

J.P. Morgan’s chief quant replies oil prices won’t hurt stock prices until they hit the $80 to $85 per barrel range.

Marko Kolanovic, pandemic head of macro quantitative and derivatives strategy, said when oil prices are stable, oil correlates positively with the S&P 500, but when there are huge price increases, the correlation weakens and becomes negative.

West Texas Intermediate futures settled at $62.90 per barrel, up 14.8% in afternoon transacting following the attack Saturday on Saudi Aramco facilities, knocking out more than half of Saudi Arabia’s oil performance. Oil had its best day since December, 2008.

In a note, Kolanovic said higher oil prices can hurt consumer spending activity, but there are also positives filing higher energy sector profits, reduced worries about high-yield energy debt, and improved employment in the commerce.

Kolanovic, who sees a positive stock market this year, said rising geopolitical risk could also be a proxy that pushes China and the U.S. to a trade agreement.

He also sees both oil and natural gas prices moving higher, and that should impel energy stocks higher, accelerating a trend into value stocks.

“Oil futures have been trading in a make tighter range below 50 100 and 200d moving average, and below 12 month momentum term and hence shorted by thing followers. With today’s move, spot has broken through all the averages and there should be significant short extend over ahead, ” he wrote.

He said there is a similar outlook for natural gas futures, which also broke 50-day and 100-day unfixed averages and are sitting just below the 200-day. Natural gas futures were at $2.68, up 2.6% Monday to a five-month serious.