Wall Street spent last week treating the Iran war like a bad headline cycle: dangerous and expensive — but probably still survivable with enough denial and an active commodity desk. JPMorgan Chase, however, just gave this concern a number.
Bloomberg reported on Monday that the bank’s head of global market intelligence, Andrew Taylor, took a “strategic” view and warned that US stocks are not ready for a full correction as the war in Iran continues and oil prices climb above $100. To Taylor, that means the S&P 500 is at risk of falling about 10% from its peak to around 6,270, even as his position remains largely neutral with no downside risk.
The market, so far, seems almost suspiciously calm – a little bearish and bearish. Even Goldman Sachs CEO David Solomon was surprised by Wall Street’s “half-hearted” reaction to the war. So why the sudden nervousness? Well, oil continues to its best effect of the wrecking ball. Crude oil prices rose to $120 a barrel on Monday, as the war widened and pressured shipping through the Strait of Hormuz. US stock futures fell, the VIX rose to 31.45, and even the Russell 2000 was briefly in correction territory.
It is made. West Texas Intermediate crude jumped 35% last week — its biggest weekly gain since the contract’s inception in 1983 — but the S&P 500 fell just 2%, and the Nasdaq fell just a little more than 1%. The disagreement looks less like volatility and more like investors think it’s all going to behave like any other geopolitical panic that turns up the heat, raises the headlines, and then gracefully fades from the rest of the stage.
The strange part for JPMorgan is that its own house was a little more comfortable just a few days ago.
On Friday, the bank’s analysts described the overall major geopolitical shock as a 5%-6% decline that could be reversed in a few weeks. They even wrote that “there is a tendency among macro strategists to dismiss geopolitics and simplify the answer: just take the plunge,” before concluding that “the current scenario with an Iranian attack is actually a buying scenario.”
JPMorgan’s tone is changing by the day. Last Monday, JPMorgan strategist Mislav Matejka wrote that “current geopolitical tensions should ultimately be an opportunity to add, as the fundamentals are positive” and said investors with a longer horizon should “take advantage of the weakness to add.” A week later, Matejka’s tone softened: “Things may need to get worse before they get better,” he wrote, even as he argued that sales may still have a “relatively limited lifespan” measured in “days/weeks” rather than months/quarters.
