Several top Wall Street firms are raising red flags on the current state of the US stock market. Amid escalating tensions between the United States and the Middle east, top sectors are being affected. Oil prices are climbing, and there is ample uncertainty in the tech sector. According to veteran stock strategist Ed Yardeni, the escalating war in Iran hurts global markets, and we are in “fast-moving times.”
As a result, Yardeni has raised the probability of a market meltdown to 35% for the rest of the year, up from 20% previously. “The US economy and stock market are stuck between Iran and a hard place currently. So is the Fed,” Yardeni wrote in a note. “If the oil shock persists, the Fed’s dual mandate would be stuck between the increasing risk of higher inflation and rising unemployment.”
Yardeni isn’t the only bear on Wall Street right now. Early Monday, $4.8 trillion asset manager JPMorgan said that the S&P 500 index could be on its way to a 10% decline. The index is up 16% in the last year and over 72% in the last five years. However, JPMorgan analysts say that a prolonged war with Iran could send the S&P 500 into correction territory. Options pricing implies the S&P 500 could drop another 2.9% this week, the analysts said, adding to last week’s losses. They added that the war could send the benchmark index to 6,720, a 10% correction from its most recent peak.
Furthermore, the bank’s trading desk says its view has turned tactically bearish. They explain that positioning signals investors aren’t positioning for further market risks even as volatility surges. “There has been a clear escalation with oil infrastructure hit on both sides … The precedent of oil infrastructure under attack has officially begun, and we believe the products rally seen last week is just starting,” JPMorgan’s commodities trading desk said. “Every single day of blockage through the strait creates exponentially larger problems for products down the road,” the analysts said, warning that declining production in the region is “rapidly approaching” a level consistent with prices hitting $120 a barrel.
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On Monday, US stocks slowed down their heavy losses from last week as crude prices eased amid the Middle East conflict. The Nasdaq Composite (^IXIC) little moved in either direction during the afternoon, recovering from steep losses earlier in the day. The Dow Jones Industrial Average (^DJI) also pared losses to 0.7% while the S&P 500 (^GSPC) dropped 0.4%.