Strategists at JPMorgan Chase warn that the S&P 500 could face a correction of up to 10% if the geopolitical conflict involving Iran continues to escalate, potentially increasing volatility across global financial markets.
According to the bank’s trading desk, U.S. investors are not currently positioned for a sharp market downturn, which could intensify market reactions if geopolitical risks continue to rise.
Andrew Tyler, head of global market intelligence at JPMorgan, adopted a “tactically bearish” stance on U.S. equities as tensions in the Middle East pushed oil prices above $100 per barrel.
A 10% correction from the index’s recent peak would bring the S&P 500 down to roughly 6,270 points, representing about 7% below Friday’s closing level.
Investors not positioned for downside risk
Tyler noted that market positioning remains largely neutral, indicating that investors have not significantly reduced risk exposure despite the rising geopolitical tensions.
Energy stocks were net sellers last week, as traders had anticipated a potential de-escalation in the Middle East conflict.
However, the situation shifted over the weekend after several Gulf states reduced oil production, sending crude prices above $100 per barrel and raising concerns about a possible long-term supply shock.
Stagflation concerns rise
Higher oil prices could also increase the risk of stagflation, a scenario where economic growth slows while inflation remains elevated.
Still, Tyler emphasized that these risks could fade quickly if the conflict is resolved soon.
“A definitive resolution to the conflict would end this tactical recommendation,” Tyler wrote, adding that underlying macroeconomic fundamentals remain supportive for risk assets
Source: Bloomberg
