JPMorgan has lowered its official forecast for the S&P 500 as the Iran war continues and oil prices soar. Dubravko Lakos-Bujas, the firm’s head of global market strategy, now expects the S&P 500 to end the year at 7,200 instead of 7,500, which would mean an increase of more than 8% from Wednesday’s close. The new target is also the second-lowest in CNBC’s 2026 market strategist survey and beats Bank of America Merrill Lynch’s forecast of 7,100. On average, strategists expect the S&P 500 to end the year at about 7,600. Lakos Bujas is concerned that the S&P 500 index will fall further in the short term. He said traders are growing complacent in hopes of an early end to the US-Iran war and a swift reopening of the Strait of Hormuz, but he believes this thinking is unstable. “This is a high-risk assumption, given that the correlation between the S&P 500 and oil typically becomes increasingly negative after oil prices rise by about 30%,” Lakos Bujas wrote on Wednesday. The strategist said investors are underestimating the impact of rising oil prices on consumer demand, contrary to the often cited risk that rising prices pose to inflation. Weakening consumers increases the risk of recession. He said consumers tend to run out of liquidity when oil prices start rising, but when energy prices spike by more than 30%, they begin to completely readjust their income and spending habits. Once this level is reached, soaring energy prices begin to have a negative impact on corporate profits and stock prices. Demand destruction from four of the five oil shocks since the 1970s led to the recession, he said, adding that forecasts for the recession remained well below historical peaks. Economists at JPMorgan predict that if oil prices continue to rise by 10%, it would hurt gross domestic product by 15 to 20 basis points. The S&P 500 was already battling a number of concerns before the oil crisis, including concerns over private credit, declining consumer affordability, and weakening AI. The technical setup is also vulnerable. On Thursday, the S&P 500 index fell below its 200-day moving average, an indicator that the long-term trend for the market-wide index is negative. Lakos Bujas wrote that without investor intervention at this point, the index may not find support until around 6,000-6,200. That would be a drop of 6% to just over 9% from Wednesday’s closing price. Indeed, Lakos-Bujas expects the S&P 500 index could resume its rally later this year, when business investment, productivity gains and fiscal stimulus boost stock prices. But he thinks geopolitical overhangs will make things “slightly more subdued” than his view earlier this year. At least on Thursday, the S&P 500 fell on the back of recent gains in Brent crude oil futures. The international benchmark price had recently been hovering around $111 per barrel, after briefly exceeding $119 per barrel early in the session.
