JP Morgan Trading Desk: Tactically bearish on U.S. stocks until the path to resolve the Iran issue is clear

# Zhao Ying

Source: Wall Street CN

JPMorgan’s trading desk upgraded its tactical stance on U.S. stocks from **“Cautious” to “Bearish”** and cut its near-term S&P 500 target by 10% to **6,270**. Attacks on oil and gas infrastructure, the risk of a Strait of Hormuz blockade, and rising stagflation expectations are driving a volatility repricing across all asset classes. However, JPMorgan stressed this is **not** the start of a structural bear market.

Escalating U.S.-Iran conflict and a surge in oil prices have led JPMorgan’s trading desk to turn outright bearish, lowering its near-term target for the S&P 500 to 6,270.

In a note released on Tuesday, Andrew Tyler, head of JPMorgan’s trading desk, shifted the tactical view on U.S. equities from “Cautious” to “Bearish”, citing weakening technicals and intensifying geopolitical risks. Tyler noted that the S&P 500 has already dropped 3.2% from its all-time high, and the unfolding U.S.-Iran conflict could push the index into a technical correction, reaching around 6,270 — representing a further decline of roughly 10% from current levels.

The key variable behind this call is extreme volatility in energy markets. WTI crude jumped **35.6%** in a single week last week, briefly spiking to $119 per barrel. Natural gas rose 11.4% and gasoline 20.2%.

JPMorgan expects oil to remain above $100 per barrel, which, combined with soft employment data, will amplify stagflation fears and lift volatility across asset classes. Importantly, the bank emphasized that this tactical bearish shift does **not** signal the start of a structural bear market and will be reversed once a clear de-escalation path emerges.

## Attacks on oil and gas infrastructure trigger commodity risk premium repricing

JPMorgan’s commodity trading desk detailed the conflict’s impact on energy supply chains in the report. According to the team, both the U.S. and Iran have targeted oil and gas infrastructure, with major refineries in Tehran and Haifa hit in succession. Several domestic fuel storage tanks — primarily holding gasoline — inside Iran have also been attacked.

“The precedent of attacks on oil and gas infrastructure is now firmly established,” the commodity desk said. “We view last week’s fuel price rally as only the beginning. Each additional day the Strait of Hormuz remains blocked exponentially worsens future fuel supply problems.”

The report drew a historical parallel: after the outbreak of the Russia-Ukraine conflict on February 24, 2022, WTI crude peaked at $123.70 per barrel on March 8 that year, and only consistently fell below $100 per barrel in late July 2022. JPMorgan commodity analysts now project production cuts from Iraq, Kuwait, and the UAE will quickly approach 4 million barrels per day, a level consistent with oil prices near $120 per barrel.

## Rising stagflation expectations trigger simultaneous repricing in bonds and rate outlook

The oil price shock is rapidly feeding into inflation expectations. The report showed that the 1-year breakeven inflation rate rose 63 basis points last week to 4.46%. The ISM Manufacturing Prices Paid index hit 70.5, the highest since June 2022 when CPI reached 9.1%, with ongoing tariff pass-through effects.

Rate market expectations have shifted dramatically. As of last Friday, bond market pricing for Federal Reserve rate cuts this year had narrowed to 43.5 basis points from 61 basis points on February 27. Meanwhile, European Central Bank expectations flipped directionally — from a 13-bp cut priced on February 28 to a **39.2-bp hike**.

JPMorgan’s trading desk also noted that equity investors were surprised by the lack of safe-haven buying in Treasuries last week. This reflected deleveraging losses among rate clients holding positions including long U.S. front-end rates, long swap spreads, short rate volatility, and steepener positions. The oil surge further triggered a bear flattening in developed-market bonds.

## Macro fundamentals still supportive, but downside risks cannot be ignored

Despite the tactical bearish shift, JPMorgan’s view on macro fundamentals remains cautiously optimistic. Last week’s ISM Manufacturing, ISM Services, and ADP employment data all beat expectations. While the nonfarm payroll report was soft, JPMorgan economists suggested combining the February figures with the exceptionally strong January data — private payrolls averaged 300,000 per month over the two months, broadly in line with the 2025 fiscal year average of 250,000. The unemployment rate rose from 4.32% to 4.44%, in line with prior forecasts.

Still, persistently high energy prices are eroding growth prospects. JPMorgan Chief Economist Michael Feroli forecasts real GDP growth of 1.75% in Q1 2026, but sustained oil prices above $100 per barrel would create a downside risk of about 60 basis points.

The report also warned that a reversal in the recent U.S. dollar strength would further fuel U.S. inflation. In addition, the non-extension of Affordable Care Act subsidies and potential increases in health insurance premiums warrant attention.

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