JPMorgan Trading Desk: Tactical bearish stance on U.S. stocks until the Iran issue resolution path becomes clear

The escalation of US-Iran conflict coupled with soaring oil prices has led JPMorgan’s trading desk to turn fully bearish, lowering their recent target for the S&P 500 index to 6,270 points.

Andrew Tyler, head of JPMorgan’s trading desk, released a report on Tuesday upgrading their tactical stance on US stocks from “cautious” to “bearish,” mainly due to technical weakness and ongoing geopolitical risks. Tyler pointed out that the S&P 500 has already fallen 3.2% from its historical high, and the continued evolution of the US-Iran conflict could push the index into a technical correction zone, around 6,270 points, roughly 10% below current levels.

The key driver behind this outlook is the sharp volatility in the energy markets. WTI crude oil surged 35.6% last week, briefly reaching $119 per barrel during the session. Natural gas increased by 11.4%, and gasoline rose by 20.2%.

JPMorgan believes oil prices will remain above $100 per barrel, and combined with weak employment data, this will heighten concerns about stagflation and increase volatility across all asset classes. Notably, JPMorgan emphasizes that this tactical bearish stance does not signal the start of a structural bear market; once a clear de-escalation path emerges in the conflict, this outlook will be reassessed.

Attacks on Oil and Gas Infrastructure Lead to Reassessment of Commodity Risk Premiums

JPMorgan’s commodities trading desk detailed the impact of the current conflict on the energy supply chain. The team reports that both Iran and Israel have targeted oil and gas infrastructure, with major refineries in Tehran and Haifa hit by missile strikes. Multiple oil storage tanks within Iran—primarily storing gasoline—have also been attacked.

JPMorgan’s commodities team states: “The precedent of attacks on energy infrastructure has now been set. We believe the price increases seen last week are just the beginning. Every additional day of blockade in the Strait of Hormuz will exponentially amplify future supply issues.”

The report draws historical parallels: after the Russia-Ukraine conflict erupted on February 24, 2022, WTI crude hit a peak of $123.70 per barrel on March 8, 2022, before gradually falling below $100 by late July 2022. JPMorgan’s commodity analysts currently expect that production cuts from Iraq, Kuwait, and the UAE will quickly approach 4 million barrels per day, aligning with oil prices around $120 per barrel.

Stagflation Expectations Rise, Repricing of Bond and Interest Rate Markets

The oil price shock is rapidly influencing inflation expectations. The report shows that the 1-year breakeven inflation rate rose 63 basis points last week to 4.46%. The ISM Manufacturing Price Index hit 70.5, the highest since June 2022 when CPI reached 9.1%. The pass-through effects of tariffs are also continuing to manifest.

Interest rate markets have also shifted significantly. As of last Friday, expectations for the Federal Reserve to cut rates this year have been revised down from 61 basis points on February 27 to 43.5 basis points. Meanwhile, the European Central Bank’s outlook has reversed—expectations shifted from a 13 basis point rate cut on February 28 to a 39.2 basis point rate hike.

JPMorgan’s trading desk also notes that last week’s lack of safe-haven buying in the Treasury market was not surprising. The reason is that rate clients previously held positions such as long US short-term bonds, long swap spreads, short volatility in rates, and steepening curves. During deleveraging, these positions suffered losses, and the surge in oil prices further triggered a flattening of developed market bond yields, indicating a bear flattening trend.

Macroeconomic Fundamentals Still Supportive, But Downside Risks Cannot Be Ignored

Despite the tactical shift to bearish, JPMorgan remains cautiously optimistic about macro fundamentals. The report highlights that last week’s data on ISM manufacturing, ISM services, and ADP employment all exceeded expectations. Although the non-farm payrolls report was weaker, JPMorgan economists suggest combining the February data with the unusually strong January figures—both averaging about 30,000 private jobs added per month, consistent with the full-year forecast of 25,000. The unemployment rate rose from 4.32% to 4.44%, in line with expectations.

However, sustained high energy prices are eroding growth prospects. JPMorgan Chief Economist Michael Feroli forecasts real GDP growth of 1.75% in Q1 2026, but if oil prices remain above $100 per barrel, there is approximately a 60 basis point downside risk.

The report also warns that a reversal of the recent dollar appreciation trend could further intensify US inflation pressures. Additionally, the expiration of subsidies under the Affordable Care Act could lead to higher healthcare insurance premiums, which warrants attention.

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