Wall Street traders are ill-prepared for an expected sharp 10% plunge in the S&P 500 triggered by the escalating war in Iran, JPMorgan Chase & Co.’s trading desk warned Monday, as oil prices soared past $100 a barrel and risks of economic stagnation loomed.
Andrew Tyler, head of global market intelligence at the financial giant, shifted to a “tactically bearish” stance on US stocks as the conflict entered its second week, with no end in sight.
Such a correction from the index’s peak would drag the S&P down to about 6,270 — a 7% slide from Friday’s close — as Middle East turmoil disrupts global energy supplies.
Traders have shown “a lack of extreme de-risking with positioning currently neutral,” Tyler noted in a client update, adding that energy stocks faced net selling last week on bets for quick de-escalation.
Iran’s oil exports would stall and output halve if the US and Israel were to seize its port on Kharg Island, triggering further attacks from Tehran on regional oil infrastructure, JP Morgan said in the note.
“A direct strike would immediately halt the bulk of Iran’s crude exports, likely triggering severe retaliation in the Strait of Hormuz or against regional energy infrastructure,” the Jamie Dimon-led lender added.
Several Gulf nations slashed oil output over the weekend, fueling supply fears and pushing crude prices into triple digits.
But JPMorgan’s Tyler said he sees potential for a quick rebound if tensions ease.
“A definitive off-ramp to the conflict will end this tactical call as the underlying macro fundamentals remain supportive of risk-assets,” he wrote.
The alert comes as markets grapple with the war’s fallout, which began last week with Iran’s blockade of the Strait of Hormuz — a chokepoint for 20% of global oil flows.
Brent crude surged 5% Monday to $102.50, while West Texas Intermediate hit $98.75, stoking inflation worries that could force the Federal Reserve to hold off on rate cuts.
US stocks dipped modestly. The S&P 500 fell 0.8%, the Dow Jones Industrial Average lost 1.1%, and the Nasdaq Composite slid 0.9%, while energy giants like Exxon Mobil gained 3.2%.
Broader sectors suffered as investors braced for higher fuel costs rippling through airlines, shipping, and manufacturing.
Reuters reported Monday that European markets tumbled 1.5% on average, with Germany’s DAX down 2% amid fears of energy shortages. US Treasury yields climbed to 4.1% for the 10-year note, reflecting bets on persistent inflation delaying Fed easing.
Treasury notes are medium-term bonds issued by Uncle Sam to borrow money from investors for two to 10 years. The yields represent the interest rate or return that they earn on their investment, which fluctuates based on economic conditions and demand.
Gold, a haven asset, jumped 2% to $2,450 an ounce.
President Donald Trump on Sunday called the ongoing strikes on Iran a “necessary defense,” pledging more military aid to allies like Israel and Saudi Arabia.
Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries, accounts for about 4.5% of global oil supply, with output of about 3.3 million barrels per day of crude, plus 1.3 million barrels per day of condensate and other liquids.
Iran has attacked energy facilities and other sites throughout the region, seeking to draw Gulf nations into the conflict.
Economists warn prolonged fighting could shave 0.5% off global GDP, according to a Bloomberg survey, with US pump prices potentially hitting $4 a gallon.
The JPMorgan research, which does not formally represent the bank’s view, echoes broader investor concerns about a possible return to stagflation — a toxic mix of slow growth plus high prices that plagued markets during the 1970s oil crisis.
Still, fundamentals like strong corporate earnings and AI-driven tech gains could cushion blows, Tyler suggested in his note to clients.
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