JPMorgan Chase: Continued Rise in Oil Prices May Trigger "Domino Effect," S&P 500 Could Fall Another 15%

Rising oil prices continue to push the U.S. stock market toward a dangerous tipping point. JPMorgan Private Bank and Goldman Sachs have issued warnings that if oil supply shocks persist, the S&P 500 could face a significant correction of 10% to 19%.

In a client report on Friday, JPMorgan Private Bank stated that if oil prices remain above $90 per barrel for an extended period, it could trigger a “domino effect” in the stock market—selling pressure in U.S. equities spreading to international and emerging markets, ultimately impacting economic growth, with the S&P 500 potentially correcting by 10% to 15%.

Meanwhile, Goldman Sachs Chief U.S. Equity Strategist Ben Snider quantified two downside scenarios in the latest weekly report: a moderate impact could see the S&P 500 fall to 6,300 points, while a severe shock reaching levels not seen in decades could see the index drop 19% from current levels to 5,400 points.

As these warnings are issued, international oil prices have hovered around $100 per barrel for several consecutive trading days, with market concerns over Middle Eastern supply disruptions intensifying. At the same time, U.S. stocks have entered a correction zone; if oil prices fail to decline, the downward trend in the stock market could deepen further.

JPMorgan: High Oil Prices Trigger a “Domino Effect”

Kriti Gupta, Managing Director of JPMorgan Private Bank, and senior market economist Joe Seydl, noted in their report that as oil prices climb toward $120 per barrel and beyond, selling pressure on the S&P 500 will gradually intensify.

It is noteworthy that this transmission mechanism exhibits a typical domino effect: rising oil prices directly suppress the stock market, which in turn weakens consumer demand through wealth effects, ultimately dragging down overall economic growth. The report breaks down this transmission into two main mechanisms:

First is the direct consumption impact. According to data from the American Automobile Association (AAA), the average U.S. gasoline price has reached $3.63 per gallon, up 21% since the escalation of geopolitical conflicts, directly reducing household disposable income.

Second is the wealth effect. Federal Reserve data shows that U.S. households held stocks and mutual funds worth $56.4 trillion in the third quarter, a decline in the stock market will shrink on-paper wealth, dampening consumer spending. JPMorgan estimates that for every 10% drop in the S&P 500, U.S. consumer spending decreases by about 1%.

The report points out that the combined “compound effect” of persistently high oil prices and a bear market in stocks will create a destructive demand shock, significantly amplifying the impact on economic growth. The U.S. economy is already showing signs of fatigue, with some forecasting agencies raising the probability of recession this week, as geopolitical tensions become the latest drag.

Goldman Sachs: Two Downside Scenarios, from “Unattractive” to “Very Unattractive”

Earlier reports from Wall Street Insights mentioned that Goldman Sachs explicitly quantified two downside scenarios, both primarily driven by the extent of the oil supply shock triggered by the Iran conflict.

Mild impact scenario: Under a “moderate growth shock” assumption, Goldman Sachs expects the S&P 500 to fall to 6,300 points, corresponding to a P/E ratio of 19, roughly a 10% decline from the recent high of 7,000, with sentiment indicators showing a 1 standard deviation decline.

Severe impact scenario: If oil prices reach levels not seen in decades, the S&P 500 could drop 19% from current levels to 5,400 points, with the P/E ratio compressing to 16.

Goldman Sachs historical data shows that during oil price surges in 1974, 1980, 1990, and 2022, the median decline in the S&P 500 was 12%, with a median peak-to-trough drop of 23%. Notably, the 1979 oil shock following the Iranian Revolution was an exception—Fed rate cuts temporarily supported the market, but it ultimately plunged during the 1981 recession.

Goldman economists estimate that even in extreme scenarios—such as a 60-day disruption in the Strait of Hormuz and an average oil price of $145 in March—the U.S. GDP growth rate could still approach 2% in Q4 2026 year-over-year. The report also notes that the U.S. economy’s dependence on oil has significantly decreased, and increased domestic oil production has somewhat buffered supply shocks.

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