US-Iran Tensions Spread to Stock Market? JPMorgan: If Oil Prices Don't "Cool Down," S&P 500 Could Plunge 15%!

JPMorgan Private Bank recently stated that if oil prices do not fall back, the recent sell-off in the S&P 500 could intensify.

In a report to clients, the bank’s researchers said they believe rising oil prices could trigger a “domino effect” in the U.S. stock market. In this scenario, as oil prices remain high, losses in the U.S. stock market could spread globally, increasing selling pressure and ultimately hurting economic growth.

With the oil market closely watching supply disruptions in the Middle East, the international benchmark Brent crude has hovered around $100 per barrel last week.

Kriti Gupta, Managing Director at JPMorgan Private Bank, and senior market economist Joe Seydl warned that if oil prices stay above $90 per barrel for an extended period, it could trigger a 10%-15% correction in the S&P 500 and spill over into international and emerging markets.

“As oil prices rise to $120 per barrel or higher, the sell-off in the S&P 500 will intensify. The domino effect could exacerbate stock market declines over time,” they wrote.

They further warned that the “domino effect” could continue to impact the U.S. economy, explaining that rising oil prices might harm economic growth in two ways.

First, Americans are already paying more at the pump. According to AAA, the national average gasoline price rose to $3.63 per gallon last Friday, a 21% increase since the start of the Iran-U.S. conflict.

Second, there is the wealth effect. Americans may start to cut back on spending as they assess the impact on the stock market and their wealth. According to the Federal Reserve’s latest data, U.S. households held $56.4 trillion in stocks and mutual funds in the third quarter.

JPMorgan estimates that a 10% decline in the S&P 500 could reduce U.S. consumer spending by about 1%.

“Now, combine all these factors. The sustained rise in oil prices and the bear market in the S&P 500 could produce a destructive demand effect, significantly amplifying the impact on economic growth,” the report said.

Since the outbreak of the Iran-U.S. war two weeks ago, markets have been concerned about the broad impacts of rising oil prices. The main worry is that higher crude prices could boost inflation while constraining economic growth. At the same time, the U.S. economy appears to have already slowed, leading some forecasters to raise the probability of a recession last week, with the war undoubtedly making things worse.

(Source: Cailian Press)