JPMorgan has poured two buckets of cold water on the market this time: investors may have made two misjudgments regarding the Iran situation.

The market's recent reaction to the Middle East situation has been a bit too calm.

While conflicts are escalating and oil prices are fluctuating, the overall performance of U.S. stocks has been relatively stable. Some investors have even started to believe:

👉This time, the U.S. economy might be immune to energy shocks.

However, a recent report from JPMorgan directly poured cold water on this optimistic expectation.

The core message of the report is clear:

The current market may be built on two key misjudgments.

The biggest mistake the market might be making right now is not worrying too much, but thinking of the Iran conflict as too simple. JPMorgan's latest view is quite straightforward: First, the U.S. is not as capable as imagined of isolating itself from the impact of a Strait of Hormuz blockade through energy independence. Second, Iran may not quickly concede due to external pressure. JPMorgan Asset Management's official view clearly states that an energy shock is not a natural firewall for the U.S. because it can both drag down growth and directly push up inflation, ultimately forcing the central bank into a dilemma.

First misjudgment: The U.S. is not immune. Many people see the U.S. as a net energy exporter and instinctively think that even if the Strait of Hormuz has problems, the U.S. can avoid it. But JPMorgan's assessment is that this thinking is too optimistic. An energy shock would simultaneously hit household consumption and corporate costs, suppressing demand while raising inflation, and the U.S. cannot completely avoid the transmission of global oil and refined product prices. An Iran war could bring sustained shocks to oil and commodity prices, making inflation stickier and interest rates higher.

This is also why the fact that U.S. stocks haven't fallen that sharply this time is actually more cause for concern. JPMorgan isn't saying the market is already wildly wrong, but that the market's current understanding of risk may be based on the premise that the U.S. can withstand it. But if oil prices remain high for a long time, energy costs will be transmitted layer by layer through transportation, manufacturing, food, and service industries, eventually coming back to the U.S. domestic market. Energy shocks are often both inflation shocks and recession shocks; while the U.S. is less oil-dependent than in past decades, it doesn't mean it's completely immune to price shocks.

The second misjudgment is that the market thinks Iran will be quickly forced to make concessions at the negotiating table. JPMorgan doesn't see it that way. Iran still possesses the ability to disrupt global energy flow infrastructure; the Strait of Hormuz itself is a passage for about one-fifth of the world's oil supply. Even if the strait isn't formally closed, insurers withdrawing war risk coverage could effectively make shipping nearly impossible in practice. Iran has not shown signs of a quick retreat, and the situation continues to drag on around ceasefires, sanctions, and strait passage rights.

JPMorgan is more concerned that Iran will find that the strategy of holding the global economy hostage has lower costs and higher effectiveness than outsiders imagine. This means the conflict may not end as quickly as the market hopes. Even if the strait reopens in the future, regional oil production and transportation may not immediately return to pre-conflict levels; factors like drones, missiles, and insufficient mine-clearing capabilities will prolong the situation. Trump has already shifted the pressure to reopen the strait to Iran and its allies, indicating there is no clear resolution path in the short term.

This explains why JPMorgan remains skeptical of the market's calm. On the surface, this round of pullback in U.S. stocks hasn't been as severe as during the early pandemic, the early days of the Russia-Ukraine conflict, or last year's tariff shock. But this calm may not mean the risk has disappeared; it's more likely that the market hasn't fully priced in the worst-case scenario. An Iran war could make inflation stickier and interest rates higher. While the U.S. economy remains resilient, it's already operating with support from government deficits and stimulus spending. If oil prices continue to shock, market expectations for interest rates may have to be revised upward.

So, the core of JPMorgan's reminder is not pessimism, but not to think of a complex problem as simple geopolitical news. If the Strait of Hormuz is disturbed for a long time, oil prices, inflation, interest rates, the stock market, and credit markets will all be repriced. And whether Iran concedes is far from being decided by a few words of diplomatic pressure. For investors, the greatest danger this time is not the volatility itself, but using overly linear judgments like "the U.S. can withstand it, Iran will retreat" to understand a highly nonlinear conflict.

Essentially, JPMorgan's report is a reminder of one thing:

👉The market is not blind to the risks, but is underestimating the transmission path and duration of the risks.

Often, the real danger is not the "black swan,"
but the "gray rhino" that is believed to "pass quickly."

And this time, the uncertainty in the Middle East situation may be in this zone.

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