J.P. Morgan Trading Desk: Tactically Bearish on U.S. Stocks Until a Clear Resolution Path for the Iran Issue Emerges

Escalation of the US-Iran conflict combined with soaring oil prices has caused JPMorgan’s trading desk to shift decisively to a bearish outlook and lower its near-term target for the S&P 500 Index to 6270 points.

Andrew Tyler, head of JPMorgan’s trading desk, issued a report on Tuesday raising its tactical stance on US equities from "cautious" to "bearish," citing weakening technicals and ongoing geopolitical risks as the main reasons. Tyler pointed out that the S&P 500 Index is currently down 3.2% from its historical high, and the continued escalation of the US-Iran conflict could push the index into a technical correction zone, around 6270 points, representing a further drop of about 10% from current levels.

The core variable driving this assessment is the severe volatility in the energy market. Last week, WTI crude oil surged 35.6% in a single week, at one point reaching $119 per barrel; natural gas rose 11.4%; gasoline rose 20.2%.

JPMorgan believes that oil prices will remain above $100 per barrel, and together with weak employment data, this will intensify concerns about stagflation and increase volatility across all asset classes. It is important to note that JPMorgan emphasized that this tactical bearish view does not signal the start of a structural bear market; once a clear de-escalation path emerges in the conflict, this view will be immediately reversed.

Oil and gas infrastructure attacked, commodity risk premium repriced

JPMorgan’s commodities trading desk detailed in its report the impact of this round of conflict on the energy supply chain. According to the team, both US and Iranian sides have struck oil and gas infrastructure, with major refineries in Tehran and Haifa hit consecutively, and multiple oil storage tanks—mainly storing gasoline—for domestic supply in Iran also attacked.

JPMorgan’s commodities desk stated: “The precedent for attacks on oil and gas infrastructure has officially begun. We believe last week’s increase in oil product prices is only the beginning. For each additional day the Strait of Hormuz is blocked, future oil product supply problems will grow exponentially."

The report cites historical analogs: After the Russia-Ukraine conflict erupted on February 24, 2022, WTI crude oil reached a peak of $123.70 per barrel on March 8, 2022, and did not fall below $100 per barrel until late July 2022. JPMorgan’s commodity analysts currently estimate that production cuts from Iraq, Kuwait, and UAE will quickly approach four million barrels per day, which aligns with oil prices of $120 per barrel.

Stagflation expectations rise, bond market and rate expectations repriced in tandem

The oil price shock is quickly impacting inflation expectations. The report shows one-year breakeven inflation rate rose 63 basis points last week to 4.46%. ISM Manufacturing Prices Paid sub-index printed at 70.5, the highest level since CPI reached 9.1% in June 2022. The tariff price pass-through effect is also continuing to manifest.

Expectations in the interest rate market have also changed significantly. As of last Friday, the bond market’s expectation for the Fed’s rate cuts this year has compressed from 61 basis points on February 27 to 43.5 basis points. Meanwhile, expectations for the ECB have reversed directions—from predicting a cut of 13 basis points on February 28 to now anticipating a hike of 39.2 basis points.

JPMorgan’s trading desk also pointed out that the absence of safe haven buying in last week’s Treasury market surprised equity investors. The underlying reason is that rate clients previously held long US front-end, long swap spreads, short rate volatility, and long curve steepening positions. During deleveraging, these positions suffered losses, and the oil price surge further triggered a bear market flattening in developed market bonds.

Macro fundamentals still provide support, but downside risks should not be ignored

Although its tactical stance has turned bearish, JPMorgan’s view of macro fundamentals remains cautiously optimistic. The report shows last week’s ISM Manufacturing, ISM Services, and ADP employment data all exceeded expectations. The nonfarm payroll report was somewhat weak, but JPMorgan’s economists suggest observing February data together with unusually strong January data—private sector jobs increased by an average of 30,000 a month over the two months, basically matching the full-year average of 25,000 for fiscal 2025. The unemployment rate rose from 4.32% to 4.44%, consistent with prior expectations.

However, persistently high energy prices are eroding growth prospects. JPMorgan’s chief economist Michael Feroli projects real GDP growth in the first quarter of 2026 at 1.75%, but if oil prices remain above $100 per barrel, that would bring about 60 basis points of downside risk.

The report also warned, if the recent trend of dollar appreciation reverses, it will further intensify US inflation pressures; additionally, if Affordable Care Act subsidies are not extended, the potential rise in health insurance premiums also merits attention.

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