Iran conflicts just adds to wall of worry for U.S. stocks, says Citi strategist

MW Iran conflicts just adds to wall of worry for U.S. stocks, says Citi strategist

By Jules Rimmer

It's the duration of the conflict, and expectations of that duration, that should drive markets

The shift from expectation risk to actual escalation is likely to influence US equity market sentiment.

While the headlines for markets are currently hogged by events in the Middle East, in the longer term, AI-induced inflation might prove to be the more critical share price-driver.

It all depends on timing, though. Citi's chief U.S equity strategist Scott Chronert points out that in the last four decades, from the market perspective at least, it's been the duration of a military conflict, and the expectations of its duration, that has mattered most.

Chronert is anxious not to underestimate the importance of the current crisis in the Middle East, but in his U.S. equity market outlook published Sunday, he stressed that the presumed objectives of the White House will be a rapid conclusion to military engagement, as well as keeping it contained as narrowly as possible.

The oil price reaction (BRN00), he says, is obvious but must now be added to a growing list of concerns troubling the U.S. stock market SPX. These include worries about the intensity of capex in the AI sector, the potential disruption to many business models caused by the rapid adoption of AI, subsequent labor market fears as well as the mounting sense of discomfort caused by signs of distress in private credit and equity markets.

"The wall of worry for U.S. equities to climb is getting higher," warns Chronert.

Moreover, Chronert cautions that this jump in oil prices, whether temporary or more persistent, will have an impact on thinking of Fed chair nominee Kevin Warsh. The market's expectations for a rate cut in June could be affected by rising energy prices, though so far that's not really the case - expectations for a cut only fell to 43% from 46%, according to CME's FedWatch tool.

All these concerns, the Citi strategist, emphasizes, matter to market sentiment but he also advises against taking an unduly negative interpretation of events. Only last week, Chronert reconfirmed his above-consensus $320 earnings per share target for the S&P 500 index in 2026. In light of recent positive earnings surprises, he now thinks this forecast is looking more conservative.

Additionally, valuations are relatively appealing, he points out. The price to earnings growth ratio for the stock cohort labeled the Elite 8 - Nvidia (NVDA), Amazon (AMZN), Microsoft $(MSFT)$, Alphabet $(GOOG)$, Meta Platforms (META), Broadcom $(AVGO)$, Tesla $(TSLA)$and Apple $(AAPL)$ - stands at ten-year lows.

-Jules Rimmer

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March 02, 2026 05:26 ET (10:26 GMT)

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