Oil Price "Breaking Hundred" Alarm Rings! Wall Street Warns U.S. Stocks Are Just Three Steps Away from a 15% Major Crash

CNBC Finance APP notes that last week, Morgan Stanley stated that oil prices need to stay above $100 per barrel to shake 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 broke above the aforementioned levels. Although the rally lasted less than 24 hours, it was enough to raise concerns on Wall Street and in Washington. At the end of the trading session, President Trump made a statement.

In an interview, he said that the war between the U.S. and Iran has been “completely ended.” The stock market, which had fallen as much as 1.5%, quickly rebounded, and oil prices also dropped back into last Friday’s trading range, even though 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 levels, 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 will last and how much damage they could cause 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 the potential disruption of multiple industries by artificial intelligence 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 such as airlines and cruise operators.

Investor capital outflows accelerate

An oil tanker explosion near Abu Dhabi has cast doubt on the market’s hopes that the Iran conflict could end quickly. Currently, oil tanker traffic through the Strait of Hormuz remains near zero.

Matt Miskin, Co-Chief Investment Strategist at Manulife John Hancock Investment Management, 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 that 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, three conditions must be met: crude oil 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 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.