Self-satisfaction attitudes loosened, Goldman Sachs clients are starting to prepare for a stock market decline.

Global stock market investors have generally remained calm in the face of escalating Middle East conflicts, but this confidence is beginning to wane. Three weeks after the outbreak of the Iran war, the market is increasingly worried that the conflict will not end soon, and its impact on the economy and stock market will be more severe than previously expected. The S&P 500 index fell by 1.6% in the past two trading days, dropping below the 200-day moving average and hitting a four-month low. The European STOXX 600 index plummeted 2.4% on Thursday, hitting a three-month low. Goldman Sachs trading department said that clients who previously expected the Iran war to be resolved quickly are now beginning to have doubts. Goldman's Sean Tultjja wrote in a report that while some investors still maintain a bullish position, another group of clients now either expect a market correction or expect the market to decline slowly and steadily like in 2022. Tultjja, responsible for the company's ETF volatility option trading business, wrote in Thursday's report: "While some still believe the situation will be resolved in one or two weeks, a new viewpoint is emerging - that there is no end in sight to the conflict. We have already seen clients express these two bearish views." The Middle East conflict has added new pressure to the market, which was already dealing with the potential disruption of many business models by artificial intelligence, as well as concerns about the devaluation of private credit and high inflation. Strategists at JPMorgan believe that while four out of five oil shocks since the 1970s have led to economic recessions, investors initially did not price in the potential economic damage from other pressures that could be caused by the spike in energy prices and the long-term closure of the Strait of Hormuz. The bank's strategists said in a report: "Although high-risk factors and some bubbles in the market speculation field have been squeezed out, we still see complacency." They added that when oil prices rise by about 30%, the correlation between the S&P 500 index and oil prices typically becomes "increasingly negative." JPMorgan's team warned that high oil prices could not only reignite inflation pressures and suppress consumer purchasing power, but also prompt Wall Street to lower growth expectations. The strategists said that if oil prices remain at current levels for the rest of the year, earnings expectations for S&P 500 index constituents could decline by as much as 5 percentage points. And with every 10% rise in oil prices, economic growth could be dragged down by 15 to 20 basis points. Daniel Anthonyuchi, Chief Investment Officer at Quintet Private Bank, said: "The direct, primary impact of the Iran conflict, such as rising oil prices, has been fully acknowledged by the market. But secondary effects, such as the impact on oil-importing and exporting countries' industries, as well as industries indirectly related to energy flow, have been less scrutinized." However, optimists who expect the stock market to find support near current levels may have historical data to support their views. In the 14 trading days since the outbreak of the Iran war, the S&P 500 index has fallen by about 4%. Historically, the index has bottomed out at around this level after similar conflicts. Deutsche Bank strategists analyzed more than 30 major geopolitical crises since 1939 and concluded that the S&P 500 index typically bottoms out around the 15th day after the outbreak of a conflict. At its lowest point, the index's trading level is on average more than 4% lower than before the conflict. Max Gockman, Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, said, "Investors are currently trapped in a geopolitical 'pinball game.' Explosive developments, both literally and symbolically, are stirring global market sentiment on what appears to be a downward-sloping chessboard, as any claims that the war is about to end lack a clear exit strategy."