JPMorgan cuts its US stock outlook and warns markets are being too complacent about an oil shock

• JPMorgan cut its S&P 500 price target, warning that markets are complacent about the Iran conflict.
• Stocks have been fairly resilient even as oil prices continue their ascent since the war began.
• Historically, stocks have become much more sensitive to oil-price increases after a 30% spike.

JPMorgan lowered its 2026 year-end S&P 500 target to 7,200 from 7,500, warning that investors have become complacent in their expectation that oil-price spikes will be short-lived.

The US stock market has been resilient amid surging oil prices since the Iran war began nearly three weeks ago. JPMorgan said this relative calm relies on one "high-risk assumption" by investors, which has led to a sense of complacency about the war.

"We believe the market is pricing in a quick end to the Middle East conflict and reopening of the Strait, giving a low probability to a potential demand hit," JPMorgan said. "This is a high-risk assumption given that S&P 500 and Oil correlations typically turn increasingly more negative after a ~30% oil spike."

Oil prices have risen more than 46% since the US and Israel's initial strike on Iran, yet the S&P 500 is down less than 4%. The analysts said investors have been hedging rather than derisking, explaining that high-risk and speculative areas of the market, such as software, South Korean equities, and crypto, have sold off, removing some froth, but complacency persists.

"Much of the market's attention has been focused on the inflationary impact from higher oil prices, but in our view, the bigger and more consequential question is the potential negative transmission mechanism into demand if the Strait does not reopen," the analysts wrote.

Bank of America raised a similar concern, warning that investors' focus on the inflationary impact of the war is overshadowing the more significant risk of a synchronized global slowdown driven by a more prolonged war.

Citadel Securities made a similar call this week, noting that it sees risk shifting from inflation to growth

JPMorgan warned that the subsequent oil-supply deficit will hurt global GDP and slow revenue growth, and will also raise the risk of a recession. They pointed out that four out of five oil shocks since the 1970s led to a recession, "not surprisingly," since supply shocks often translate to demand destruction.

The oil shock from the war in Iran comes at an already challenging time for the market. JPMorgan listed private credit worries, including software-specific concerns and an uptick in retail redemptions, the AI trade losing steam, an affordability crisis, a cooling labor market, and the Federal Reserve's tough balancing act to manage the economy, as challenges.