The imminent opening of the Hormuz Strait, Wall Street bets on cyclical stocks to take over from technology stocks.

Please note that Morgan Stanley strategists have indicated that US stocks may receive additional support from a rotation of funds into cyclical and economically sensitive industries. These industries have historically lagged behind during previous Iran conflicts. Led by Michael Wilson, the strategy team pointed out that reports show increased shipping traffic in the Strait of Hormuz, with evidence suggesting that headwinds from interest rates, oil prices, and the US dollar on the stock market may be diminishing. In a report on Monday, the firm stated that this could help drive cheaper value stocks to a dominant position in the market, as previous market leadership has been highly concentrated in high-growth tech stocks. Wilson reiterated his positive view on underweight cyclical sectors, such as consumer discretionary, transportation, and regional banks. He noted that despite these sectors outperforming the S&P 500 index recently, market sentiment and positioning remain "leaning towards pessimism and reacting flatly". Expectations of a lasting agreement between the US and Iran have boosted risk sentiment, with the S&P 500 index currently only about 2% below its all-time high. Strategists are generally betting that global stock markets (including Europe where cyclical industries make up a large portion) will see a new wave of upward momentum. Lower energy prices will curb inflation risks, thus easing pressure on the Federal Reserve to raise rates in response to inflation. US stocks have pulled back from historical highs J.P. Morgan's global equity strategist Mislaav Matejka also expressed similar optimistic views, stating that as long as geopolitical tensions ease and corporate earnings and inflation remain stable, rotation into cyclical sectors "will continue to be a effective profit strategy by the end of the year". Meanwhile, Deutsche Bank's head of European equity strategy, Maxmilian Wuller, has ended an arbitrage trade favoring US stocks over European stocks, citing fading factors that have been driving US stock strength (including tech leadership and stronger earnings growth). Wilson stated that the recent pullback in US stocks, led by semiconductor stocks, is due to a slowdown in corporate earnings momentum rather than deteriorating fundamentals. He added that such pullbacks are common in profit-driven bull markets after strong performances. Wilson pointed out, "While we may see more volatility in the coming weeks, our confidence in the current bull market remains solid." Strait of Hormuz navigation imminent, can US stocks' "cyclical revival" take over from tech stocks? With the US-Iran agreement close to fruition, the Strait of Hormuz, which accounts for about one-fifth of global oil transportation, is expected to fully resume navigation. This geopolitical turning point, combined with the marginal easing of drag from interest rates, oil prices, and the US dollar on the stock market, could trigger a significant rotation of funds from tech stocks to cyclical industries. During months of localized conflicts, high war insurance premiums, supply chain detours, and soaring energy prices were like a sword hanging over the real economy. Now, with normalized sea transport, oil premiums have plummeted, and shipping logistics costs have fallen significantly. This not only removes the high inflation "shackles" from global manufacturing and aviation industries but also completely reverses capital preference in the secondary market. The rotation of funds into cyclical stocks is not only happening within the US stock market but is also reshaping the global capital flow pattern. J.P. Morgan points out that as long as earnings and inflation remain stable, the rotation of funds into cyclical stocks will be a winning strategy by the end of the year. Major players like Deutsche Bank have begun to close arbitrage trades favoring US stocks over European stocks, as the latter, dominated by traditional cyclical industries like industrial, automotive, and financial sectors, have demonstrated stronger recovery momentum amid the thawing of the Middle East situation. The recent pullback in US tech stocks, led by semiconductor stocks, is actually the pain point of this style switch. The easing of tensions between the US and Iran has boosted funds into cyclical sectors, but Wall Street analysts are not all in agreement. From bullish optimism to cautious observation, various perspectives reflect deep divisions on the strength of the US economic recovery. Goldman Sachs remains reserved about the rotation pace. The bank points out that the current market leadership is still highly concentrated in tech stocks, and while the equal-weighted S&P 500 has hit new highs, the market-cap weighted version has been plateauing, indicating that "breadth improvement" has not yet translated into "depth change". Goldman advises investors to watch if the ISM manufacturing PMI can sustainably rise above the 50 threshold before increasing exposure to cyclical stocks. Bank of America's strategy team warns that the market may be overly optimistic about the "US-Iran agreement", and whether the reopening of the Strait of Hormuz can fully resolve global structural supply chain vulnerabilities remains uncertain. More importantly, regional banks' balance sheets remain fragile in a restrictive high-interest rate environment, and consumers' excess savings have been largely depleted. Morningstar analysts bluntly state that the leadership position of tech stocks is difficult to be truly overturned after short-term fluctuations, and this rebound of cyclical stocks is more like a crowded defensive portfolio rebalancing. Once economic data shows signs of fatigue, economically sensitive industries will be the first to come under pressure. Whether cyclical stocks can transition from a "short-term rebound" to a "long-term bull market" depends on whether the macroeconomic environment can achieve a true soft landing.