Wall Street spent last week treating the Iran war as an unpleasant headline cycle: alarming and costly, but perhaps still survivable with enough denial and a functioning commodities desk. JPMorgan Chase, however, simply put a number on that anxiety.
Bloomberg reported Monday that Andrew Tyler, the bank’s head of global market intelligence, has turned “tactically bearish” and warned that U.S. stocks are not ready for a full correction as the war in Iran drags on and oil rises above $100 a barrel. For Tyler, that means the S&P 500 is at risk of falling about 10% from its peak to around 6,270, even as his position remained predominantly neutral without extreme risk reduction.
The market, so far, has seemed almost suspiciously relaxed, barring some ups and downs. Even the CEO of Goldman Sachs, David Solomon, has expressed surprise at Wall Street’s “benign” reaction to the conflict. So why the sudden nerves? Well, oil continues to do its best wrecking ball impression. Crude rose to $120 a barrel on Monday as the war expanded and shipping through the Strait of Hormuz came under pressure. US stock futures fell, the VIX rose to 31.45 and even the Russell 2000 briefly reached correction territory.
This has been accumulating. West Texas Intermediate crude rose 35% last week (its biggest weekly gain since the contract was launched in 1983), but the S&P 500 fell just 2% and the Nasdaq only fell a little more than 1%. The dislocation has begun to look less like resilience and more like investors assuming this will all behave like any other geopolitical scare that smolders, shakes headlines, and then exits cleanly off stage left.
The uncomfortable thing for JPMorgan is that its own house was saying something much calmer just a few days ago.
On Friday, the bank’s analysts described the typical major geopolitical shock as a 5% to 6% drop that recovers within a few weeks. They even wrote that there is “a tendency among macro strategists to dismiss geopolitics and oversimplify the answer: simply buy the dip,” before concluding that “the current episode with the invasion of Iran is in fact a buy-the-dip scenario.”
JPMorgan’s tone has been changing day by day. Last Monday, JPMorgan strategist Mislav Matejka wrote that “the current geopolitical escalation should ultimately be an opportunity to add as fundamentals are positive,” and said investors with a longer horizon should “use the weakness to add.” A week later, Matejka’s tone had darkened: “Things may have to get worse before they can get better,” he wrote, even as he argued that the liquidation could still have a “relatively limited lifespan” measured in “days/weeks, rather than months/quarters.”