JPMorgan cut its official S & P 500 forecast as oil spikes amid the ongoing war in Iran. Dubravko Lakos-Bujas, the firm's head of global markets strategy, now expects the S & P 500 will end the year at 7,200, instead of 7,500, which implies more than 8% upside from Wednesday's close. The new target is also now the second lowest on CNBC's 2026 market strategist survey, ahead of only Bank of America Merrill Lynch's forecast of 7,100. On average, strategists expect the S & P 500 will end the year at about 7,600.
Lakos-Bujas worries that the S & P 500 has further to fall over the near term. He said traders have grown complacent in anticipating a quick end to the U.S.-Iran war and a speedy reopening of the Strait of Hormuz—a line of thinking he considers precarious. "This is a high-risk assumption given that S & P 500 and Oil correlations typically turn increasingly more negative after a ~30% oil spike," Lakos-Bujas wrote on Wednesday.
The strategist said investors are underestimating the effect higher oil prices will have on consumer demand, as opposed to the frequently cited risk higher prices will have on inflation. A weaker consumer heightens the risk of a recession. While consumers tend to drain liquidity when oil starts to rise, he said, they start to recalibrate their income and spending habits completely when energy spikes more than 30%—that is the level at which higher energy prices start to hurt corporate earnings and stocks. The resulting demand destruction from four of the five oil shocks since the 1970s have led to a recession, he said, adding that expectations of an economic downturn remain far below prior peaks.
JPMorgan's economists expect a sustained 10% increased in oil prices would mean a 15 to 20 basis point hit to GDP. The S & P 500 was already contending with a raft of concerns prior to the oil shock, including fears around private credit, lower consumer affordability, and a weakening AI story. The technical setup also is fragile. On Thursday, the S & P 500 dropped below its 200-day moving average, an indicator that suggests the long-term trend for the broad market index is negative. If investors fail to step in at this point, Lakos-Bujas wrote, the index may not see support until around 6,000 to 6,200. That's represents a little more than a 6% to 9% drop from Wednesday's close.
To be sure, Lakos-Bujas expects that the S & P 500 could resume its upward advance later this year when business investment, productivity gains, and fiscal stimulus boosts stocks. However, he thinks it will be "slightly more constrained" compared with the view earlier in the year because of the geopolitical overhang.
On Thursday, at least, the S & P 500 dropped on the back of the latest rise in Brent crude futures. The international benchmark was last at around $111 a barrel after briefly topping $119 a barrel earlier in the session.