Hormuz is everything! If oil prices break above the $100 mark, the U.S. stock bull market could face a "major pullback crisis"

Just like a clock, Wall Street strategists and stock market investors are turning to a traditional playbook: global stock declines triggered by sudden geopolitical conflicts are almost always good opportunities to buy the dip. However, the classic “buy the dip” strategy is becoming increasingly risky amid the major threat that international oil prices could surge to $100 a barrel.

This time, there’s a major caveat: if the geopolitical confrontation between the U.S., Israel, and Iran continues, the benchmark international oil price—Brent crude—could stay near $100 per barrel for some time, potentially killing the U.S. economy, which has long been driven by consumer spending.

As long as oil prices haven’t truly hit $100, a pullback in global markets, including U.S. stocks, might still be seen as a repairable shallow correction, and the buy-the-dip strategy could still sweep the markets. But once the risk of the Strait of Hormuz pushes oil into triple digits, inflation, interest rates, and consumer pressures will make the old “bottom-fishing” script completely ineffective.

Although oil prices reaching $100 are not yet the consensus among oil analysts, it has become a significant potential risk that stock bulls are considering. Rising energy costs could threaten consumer spending growth, reignite inflation, and push interest rates higher—an unfolding market scenario already playing out in Monday’s financial markets: long-standing safe-haven assets like U.S. Treasuries failed to provide their traditional refuge during heightened geopolitical tensions, with yields soaring due to renewed inflation fears and fears that the Fed might hike rates in response to high prices.

Jay Woods, Chief Global Strategist at Freedom Capital Markets, wrote in a report: “If high oil prices persist for a prolonged period, inflation concerns could start to heat up. This would impose a huge and unexpected tax on consumers, and with President Trump pressuring for rate cuts, the Fed wouldn’t need to deal with such issues.”

On the first trading day after Iran’s attack and subsequent military retaliation, the market’s decline proved short-lived: the S&P 500 briefly fell as much as 1.2% after opening, then recovered, trading roughly flat by midday, and finally edged up 0.04%. West Texas Intermediate (WTI) crude oil surged as much as 12%, reaching $75.33 per barrel, then halved its gains, trading around $71. Brent crude rose 7.4% on Monday, closing at $77.85 per barrel.

As shown in the chart above, when international oil prices break above $100, U.S. stocks tend to perform very poorly.

However, the escalation of Middle East geopolitical tensions is impacting a market already cautious due to fears that AI could disrupt many traditional industries and cracks in the credit markets.

According to top Wall Street firms like Goldman Sachs, the current market resembles a high-probability phase of “initial shock/retracement washout, then attempting a meaningful breakout above 7,000, followed by a new bull market.” After the recent failed attempt to break 7,000, the “Anthropic storm”—a panic selloff driven by fears of AI disruption—continues to ferment in global markets. Coupled with repeated capital flows and geopolitical risks, the S&P 500 may first follow a “painful path” before any sustained rally.

If oil prices surge to $100 or more, U.S. stocks could face a major downturn

Bloomberg Intelligence strategists say that historically, stock markets only truly suffer when oil prices exceed $100 a barrel. They add that since 1983, after periods when oil prices stayed above $100, the S&P 500 has averaged a decline of 1.6% within a year. Some Wall Street analysts have already incorporated this level into their models, assuming a long-term closure of the Strait of Hormuz.

Nathaniel Welnhofer, a strategist, said: “This is the only price range we’ve studied that correlates negatively with future returns; beyond that, it also has a psychological significance.”

Michael Wilson’s team at Morgan Stanley also views $100 oil as a potential trigger for a bear market in global equities—an environment where the economy is in its late cycle phase, increasing the likelihood of such a scenario. They note that the probability rises when oil prices increase by 75% to 100% year-over-year, and the shock occurs late in the economic cycle. Without both conditions, geopolitical events are more likely to cause a temporary pullback rather than a structural downturn.

Wilson believes the current market does not meet these “high-risk” criteria. He sees the environment as early-cycle, with profit recovery accelerating, driven by “multiple synergistic factors” supporting a rolling cycle recovery in U.S. stocks. Morgan Stanley projects 2026 as a “broad-based bull market under a rolling recovery,” with a return to risk appetite and multiple industry cycles resonating, led by cyclical stocks in the second phase of the bull.

Wilson maintains a year-end target of 7,800 for the S&P 500, similar to Goldman Sachs. He warns that before a stronger bull run, the market could experience significant downward adjustments due to geopolitical tensions, tariffs, and the pessimistic “AI disruption” sentiment.

Meanwhile, the U.S. economy driven by tech stocks—now the world’s largest oil producer—has greater resilience to global oil shocks than decades ago. So far, oil prices have not pushed crude near the $100 level that stock bulls fear.

Joseph Brusuelas, Chief Economist at RSM US, said: “Today’s rise in oil prices doesn’t pose the same major downside risks to overall U.S. growth or inflation as it did half a century ago.” He added that oil would need to reach $120–130 per barrel to significantly curb consumer spending and potentially ignite inflation. “For now, early price movements in energy markets don’t seem to pose any substantial risk to U.S. growth or inflation outlooks.”

The crucial role of the Strait of Hormuz in the bull market logic

Much depends on how long the conflict between the U.S., Israel, and Iran persists, and how long the disruption of oil shipments through the Strait of Hormuz lasts. About one-fifth of the world’s oil consumption passes through this strait.

According to Bloomberg Intelligence, if Iran’s blockade of the strait becomes long-term, it could replay the oil shocks of 1973’s Arab oil embargo and the 1979 Iranian Revolution. Strategists note that the 1973 embargo caused stagflation and a global recession, with the S&P 500 falling 29% annually; the second crisis, during the 1980 recession, saw the index still gain an 11.3% annualized return.

U.S. Defense Secretary Pete Hegseth denied reports of an “endless” war with Iran, though U.S.-led airstrikes continued into their third day on Monday. President Donald Trump said in an interview that the operation was “slightly ahead of schedule,” expecting it to last about four weeks.

In the near term, traders will focus on a 100-mile-long “world energy choke point” connecting the Persian Gulf and the Gulf of Oman.

On Monday, the S&P 500 closed nearly flat after a sharp early decline. Traders remain weighing the potential impact of escalating Middle East tensions, which triggered a rapid surge in Brent crude oil prices. With oil and LNG shipping through the Strait of Hormuz nearly halted and a major Saudi refinery experiencing a power outage, energy markets faced a severe supply shock, pushing oil prices higher.

While rising oil prices may dampen risk appetite, history shows that U.S. stocks tend to deliver positive returns a month after an initial selloff caused by a single-day surge. This suggests a short-term pressure followed by recovery, more consistent with current market structure than a direct breakout past 7,000 points. The key to whether stocks can sustain a strong rally after the correction depends on whether oil shocks persist, whether the Strait of Hormuz remains blocked long-term, and whether inflation and rate cut expectations continue to worsen.

Adrian Helfert, Chief Investment Officer at Westwood Management, said in a report: “If Iran deploys mines, fast attack boats, or drones to restrict commercial traffic—even partially or temporarily—the impact on energy prices will be severe and immediate. We are most focused on this scenario because it’s the kind of event that can turn a geopolitical incident into a direct global economic shock.”