Wall Street firms are warning of significant stock market risks due to escalating Middle East tensions. Veteran strategist Ed Yardeni raised the probability of a market meltdown to 35%, citing an oil price shock. JPMorgan analysts warned the S&P 500 could fall 10% to 6,720, with options pricing suggesting further near-term declines. Their trading desk turned tactically bearish, noting that attacks on oil infrastructure could push crude prices toward $120 a barrel, creating problems for the Federal Reserve’s mandate.
Several top Wall Street firms are raising red flags on the current state of the U.S. stock market. Amid escalating tensions, veteran strategist Ed Yardeni stated, “The US economy and stock market are stuck between Iran and a hard place currently. So is the Fed.”
Yardeni raised the probability of a market meltdown to 35% for the rest of the year. He warned a persistent oil shock would pressure the Federal Reserve’s dual mandate between inflation and unemployment risks.
Analysts at JPMorgan said the S&P 500 index could be on its way to a 10% decline. They stated a prolonged war could send the benchmark index to 6,720, a correction from its recent peak.
Options pricing implies the S&P 500 could drop another 2.9% this week. This would add to losses from the previous week.
The bank’s trading desk says its view has turned tactically bearish. They noted investors are not positioning for further market risks even as volatility surges.
JPMorgan’s commodities desk warned the precedent of oil infrastructure under attack has officially begun. “Every single day of blockage through the strait creates exponentially larger problems for products down the road,” the analysts said.
They warned declining production is rapidly approaching a level consistent with oil hitting $120 a barrel. This followed a products rally seen last week.
On Monday, U.S. stocks slowed their heavy losses from the previous week. The Nasdaq Composite little moved while the Dow Jones and S&P 500 pared some losses.
