JPMorgan Warns of Potential 15% S&P 500 Decline if Oil Prices Persist Above $90 per Barrel

JPMorgan Private Bank has indicated that recent selling pressure on the S&P 500 could intensify if oil prices fail to retreat.

In a report to clients issued on Friday, the bank's researchers highlighted that elevated oil prices could trigger a "domino effect" in equity markets. They explained that sustained high oil prices would amplify stock selling pressure, spread declines from U.S. markets globally, and ultimately weigh on economic growth.

The international benchmark Brent crude has hovered near $100 per barrel this week, as markets monitor potential supply disruptions stemming from tensions in the Middle East.

JPMorgan cautioned that if oil prices remain above $90 per barrel for an extended period, the S&P 500 could experience a correction of 10% to 15%, with ripple effects across international and emerging markets.

According to Kriti Gupta, Executive Director, and Joe Seydl, Senior Market Economist at the bank, if oil prices rise toward or exceed $120 per barrel, selling in the S&P 500 would intensify further, and the domino effect would lead to a broader and prolonged downturn in equities.

They noted that this domino effect could also adversely affect the U.S. economy through two primary channels.

On one hand, U.S. consumers are already feeling the impact of rising fuel costs. Data from the American Automobile Association (AAA) showed the national average gasoline price climbed to $3.63 per gallon on Friday, up 21% since the onset of the U.S.-Iran conflict.

On the other hand, the wealth effect poses another risk.

As stock markets decline, American households may begin to cut spending as they reassess the impact of shrinking asset values on their paper wealth. According to the latest Federal Reserve data, U.S. households held a total of $56.4 trillion in stocks and mutual funds in the third quarter.

JPMorgan estimates that a 10% drop in the S&P 500 could reduce U.S. consumer spending by approximately 1%.

Gupta and Seydl stated, "When combined, persistently high oil prices alongside a bear market in the S&P 500 would have a damaging effect on demand and significantly amplify the negative impact on economic growth."