'Euphoria returns to markets': JPMorgan says the ceasefire could drive a 6% pop in the S&P 500

• US stocks surged after the US and Iran agreed to a two-week ceasefire agreement.
• JPMorgan's trading desk shifted back to a tactically bullish view on the deal.
• The analysts expect positive earnings results to further boost gains.

The last-minute Iran war ceasefire deal has caused JPMorgan to flip bullish on its stock market view.

US stocks are rallying as oil plunges after the US and Iran reached a two week ceasefire agreement late Tuesday. If the moves hold, the Dow will log its best day in a year.

JPMorgan's trading desk said they are tactically bullish again after the deal, explaining that stocks are set up to pop on the relief rally.

"This ceasefire should trigger a re-risking potentially similar to the post-Liberation Day pivot. How far could this go? SPX futures are trading ~6810, so breaching 7k feels likely as euphoria returns to markets."

A rise to that level would mark a 6% jump from Tuesday's close.

The analysts say the ceasefire should complement what they expect to be a positive earnings season, further boosting stock gains. They say this is especially true for tech, given recent valuation declines.

They expect the first-quarter earnings season to see a nearly 10% year-over-year jump in revenue, while earnings pop 13% from the year-ago period.

The key to JPMorgan's bullish shift is the reopening of the Strait of Hormuz and an extension of the ceasefire beyond the two-week period initially agreed to by the US, Israel, and Iran.

The firm's trading desk told clients to expect a decline in bond yields, a sharp sell-off in oil and energy, US dollar sell-off, and tightening credit spreads. The 10-year Treasury yield fell sharply on Wednesday, dropping 10 basis points to 4.24%, as markets recalibrated their inflation expectations stemming from the war.

They expect equities "to rip," flagging the tech sector specifically. "Mag 7 and Semis seemed poised to explode higher," the analysts wrote.

JPMorgan also pointed to cyclicals, saying that consumer plays, such as discretionary spending names in homebuilders and retailers, offer the best near-term upside.

Financials could also see a rally driven by an improving macro backdrop and expected earnings strength, among other factors, JPMorgan said.

They also said that precious metals are likely to see a rebound if the US dollar depreciates given the recent correction in metals.