Oil Prices Sound "100" Alarm! Wall Street Analysts Warn U.S. Stocks Only Three Steps Away from 15% Collapse

Last week, Morgan Stanley stated that oil prices need to stay above $100 per barrel to maintain their bullish outlook on U.S. stocks. Evercore ISI pointed out that crude oil prices between $93 and $97 indicate an upcoming stock market decline.

On Monday, oil prices surged and briefly broke above that level. Although the rally lasted less than 24 hours, it was enough to raise concerns on Wall Street and in Washington. Toward the end of trading, President Trump made a statement.

In an interview, he said the war between the U.S. and Iran has “been very thoroughly ended.” The stock market, which had fallen as much as 1.5%, quickly rebounded, and oil prices also retreated to last Friday’s trading range, even as the U.S. leader mentioned he is “considering” taking control of the Strait of Hormuz. On Tuesday morning, crude oil prices remained volatile at the same level, while U.S. stock index futures fell 0.3%.

However, despite the retreat from nearly $120 per barrel, the risk of returning to triple digits still exists. This is prompting strategists to analyze how long high oil prices might last and how much damage they could do to the S&P 500.

“The issue is complete uncertainty,” said CFRA Chief Investment Strategist Sam Stovall.

The Iran conflict is adding energy-related inflation risks to traders’ already lengthy list of concerns, which also includes AI’s potential to disrupt multiple industries and cracks in the private credit market. The surge in oil prices not only threatens American consumers’ purchasing power but also impacts energy-intensive industries like airlines and cruise operators.

Accelerating Outflows of Investor Funds

An oil tanker explosion near Abu Dhabi has cast doubt on the quick resolution of the Iran conflict. Currently, oil tanker traffic through the Strait of Hormuz remains near zero.

Manulife John Hancock Investment Management Co-Chief Investment Strategist Matt Miskin said in an interview that if oil prices stay high, “the Federal Reserve will essentially be unable to ease monetary policy as expected, which also means inflationary effects will be harder to dissipate.”

Meanwhile, Deutsche Bank stated that for an oil shock to cause at least a 15% drop in the S&P 500, one of three conditions must be met: crude prices must rise at least 50% and stay elevated for months; trigger hawkish responses from central banks; or cause broader damage to the U.S. economy.

Regarding widespread economic pain, Jim Reid, Head of Global Macro Research and Thematic Strategy at Deutsche Bank, wrote in a recent client report that such “price shocks are less impactful on the U.S. than in the past,” because the U.S. has become a major oil producer.