JPMorgan Chase Warns: If Oil Prices Remain Elevated, Selling Pressure on Stock Market Will Increase

JPMorgan Private Bank Managing Director and Global Investment Strategist Kriti Gupta, along with JPMorgan Private Bank Senior Market Economist Joe Seydl, recently issued a market analysis warning that if oil prices continue to rise, the recent sell-off in the S&P 500 could intensify.

Historically, oil shocks are not uncommon. The 1973 oil embargo, the 1979 oil crisis, and more recently, the surge in oil prices following the Russia-Ukraine war in 2022—all shook the global economy. Over time, markets and policymakers have become more adept at responding to supply disruptions. Oil production can be adjusted, and strategic reserves can be tapped. Though painful, these impacts may be temporary.

But demand-side shocks are a different story. Unlike supply-driven disruptions, reversing demand destruction is much harder. Once consumers cut back spending and change their habits, economic growth slows. This means the next oil shock could cause a severe stock market sell-off rather than gasoline or diesel shortages—this is the “wealth effect” at work.

Timing is key

Federal Reserve inflation models estimate that every $10 increase in oil prices raises inflation by 0.35%. Based on this, a conflict lasting three to six months that pushes oil prices to $100 per barrel could further increase inflation by 1.4%. And this figure could continue to rise. The longer the conflict lasts and the higher oil prices go, the greater the direct impact on inflation.

The good news is that it takes time for changes in consumer behavior to show up in data, meaning if the disruption is short-lived, its impact could be limited. A close example is the Gulf War of 1990-1991, when oil prices doubled and the stock market fell over 20%, with a sharp rise in recession risk. But within three months, prices normalized. Speed is a crucial advantage.

Today, the same situation could cause far more severe turmoil—even if it only lasts three months. Markets expect Brent crude to stay above pre-conflict levels until mid-2027, because even if the conflict ends quickly, full production recovery takes time, and recent risks are heightened.

The chain reaction from soaring oil prices affects not only pump prices and the security of key waterways like the Red Sea and the Strait of Hormuz but also shocks the stock market. This makes it not just a supply-side issue but also a transmission mechanism that disrupts demand. This could be even more dangerous for the global economy.

Magnifying the impact

Over the past 18 months, U.S. household spending has grown faster than income. With balance sheets at record highs, 25% of net worth is in corporate equities.

Fueled by stock market gains, consumers focus more on rising asset prices than modest wage increases. When markets are strong, they feed back into the economy. People feel wealthier in savings, investments, and retirement accounts, leading to increased spending. This is the “wealth effect” at work.

But this also introduces asymmetric risks. A reversal in asset prices could cause a sharper decline in consumption, amplifying the inflationary impact of oil shocks. In other words, a stock market crash and a drop in household wealth—even if only on paper—could make consumers more cautious next time they spend. Coupled with rising oil prices, this makes consumer spending even more difficult.

The domino effect

Sustained high oil prices at $90 per barrel could lead to a 10% to 15% decline in the S&P 500. As oil prices climb to $120 per barrel or higher, selling pressure on the S&P 500 would intensify. The impact is not limited to the U.S.; international and emerging markets are typically more sensitive to global growth shocks, and spillover effects abroad could be even larger. Since the conflict began, these shifts in market behavior have become evident.

From a growth perspective, every 10% drop in the U.S. stock market could reduce consumer spending by about 1%. Combining these factors, the persistent high oil prices and a bear market in the S&P 500 could produce a destructive demand shock, significantly amplifying the impact on growth.

None of this is inevitable. Iran’s conflict is unlikely to last long. Moreover, this scenario does not account for changes in monetary policy, government intervention, fiscal support, or increased production from U.S. shale and global deepwater drilling platforms—if oil prices stay high and the economy shows signs of distress, all these factors could come into play.

However, in the face of shipping and oil production chaos, the stock market may have a more direct influence on consumer behavior than oil prices themselves. If markets react sharply, the next oil shock could become not just a supply issue but also a demand problem. The situation remains volatile and unpredictable, but overall, the U.S. is relatively more resilient than its international peers in terms of consumer conditions and energy independence.