JPMorgan Chase traders outlined three scenarios for U.S. stocks tied to Middle East tensions, with an "everything rally" led by small caps and tech if geopolitical risks ease.
JPMorgan Middle East Scenarios
The bank's trading desk mapped out how different outcomes in the region could move equities, according to a Bloomberg report.
In a "status quo" scenario, stocks would see short-term stability if tensions de-escalate on a limited basis, though vessels passing through the Strait of Hormuz would remain largely restricted.
"It would be a short-lived win if Trump were to back away from his threats on Iranian infra, seemingly keeping Iran from targeting Saudi oil production while keeping the Houthis from closing access to the Red Sea," the desk wrote.
Should diplomacy fail and military activity increase, JPMorgan warned that West Texas Intermediate crude could spike to between $125 and $150 per barrel.
That would trigger what the traders called a "puke everything" sell-off. Airlines would be the most exposed, while energy, renewable and defense firms would likely see demand.
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Small Caps, Tech Lead Bull Case
In the bullish scenario, the desk predicted an "everything rally" driven by de-escalation or a shift in government policy. Small-cap stocks and technology shares would lead the charge, with homebuilders and retailers also outperforming.
Financials would benefit from an improved macro backdrop. Precious metals would get a lift from a weaker dollar. Energy stocks, by contrast, would take a hit in this scenario.
JPMorgan Geopolitical Track Record
The bank has increasingly used Middle East developments as a lens for equity positioning in recent months. JPMorgan's trading desks have issued similar scenario analyses around prior flare-ups involving Iran, the Houthis and Red Sea shipping routes, framing oil prices and military risk as the primary drivers of sector rotation across U.S. markets.
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