JPMorgan cuts its target for the S&P 500 and warns investors not to become dangerously complacent about the risks of war with Iran, oil above $110, and the hit to growth, earnings and stocks.
summary
- JP Morgan cut its year-end target for the Standard & Poor’s 500 index from 7,500 to 7,200, arguing that markets are reducing… High risk Betting on a quick solution to the Middle East.
- With Brent crude above $110 and closes near record levels, the bank warns that every sustained 10% increase in oil prices could cut 15 to 20 basis points from GDP and cut S&P earnings by 2 to 5 percent.
- A deeper sell-off could push the S&P 500 below its 200-day moving average toward 6,000-6,200 while destroying demand and wealth effects, strategists say.
JPMorgan became the latest — and most prominent — Wall Street institution to sound the alarm on Thursday, cutting its year-end price target for the Standard & Poor’s 500 index from 7,500 to 7,200 and warning that stock markets were making a “high-risk assumption” by pricing in a quick resolution to the conflict in the Middle East. The downgrade, issued as Iranian strikes on Gulf energy infrastructure sent Brent crude above $110 a barrel, signals a growing conviction among institutional analysts that the economic fallout from the war has been systematically underestimated.
“We believe the market is pricing in a quick end to the conflict in the Middle East and the reopening of the Strait, giving a low probability of a potential hit to demand,” JPMorgan wrote in its note. “This is a high-risk assumption given that the S&P 500 and oil correlations typically become increasingly more negative after oil prices rise approximately 30%.”
Oil prices have risen more than 46% since the United States and Israel launched their initial strikes on Iran, yet the S&P is down less than 4% – a discrepancy that strategists at JP Morgan view as a sign of dangerous complacency in the market rather than true resilience. While high-risk sectors such as software stocks, South Korean stocks, and cryptocurrencies sold off, broad equity positions were barely changed, with investors hedging rather than seriously de-risking.
The bank’s main warning focuses not on inflation – the traditional narrative of the oil shock – but on the destruction of demand. JP Morgan believes that if the supply disruption persists, “GDP, demand and revenues will adjust to the decline through forced demand destruction.” The bank estimates that each sustained 10% increase in oil prices cuts between 15 and 20 basis points from GDP growth. If Brent settles near $110, S&P 500 earnings estimates could fall by 2 to 5%.
The structural supply picture exacerbates concerns. Oil supply shutdowns have already risen to 8 million barrels per day – an all-time high – and JP Morgan has warned that cuts could reach 12 million barrels per day, equivalent to roughly 11% of global production.
Earlier this week, JPMorgan Private Bank strategists Joe Seidel and Kriti Gupta laid out the transmission mechanism in stark terms: Oil’s continuation above $90 a barrel threatens a 10% to 15% correction in the S&P 500, with international and emerging markets facing greater spillover losses due to their higher sensitivity to global growth shocks. At $120 oil, selling could intensify significantly.
The wealth effect adds a secondary channel. With the United States Captivity With more than $56 trillion in stocks and mutual funds held, the continued divestment of stocks would ripple through consumer spending – JPMorgan estimates that a 10% decline in the S&P 500 could reduce US consumer spending by about 1%. “The combined effect of persistently high oil prices and a bear market in the S&P 500 is having a significant impact.” detrimental “The impact on demand significantly magnifies the negative impact on growth,” the bank concluded.
If the S&P 500 Sales operations It extends below the 200-day moving average near 6,600, and the bank said real support may not emerge until the 6,000-6,200 range. Now, with the war entering a dangerous new phase in energy infrastructure, and no diplomatic way out in sight, JPMorgan’s revised target may be optimistic rather than cautious.
