Is the rebound of US stocks in place? Fidelity warns: If oil prices do not fall, the pullback will continue.

Fidelity Global Macro Manager Julien Timmer pointed out that the longer oil prices remain high, the longer the recent adjustment in the U.S. stock market will continue. Considering that current oil prices are influencing stock market trends, Timmer reviewed historical oil price shocks to evaluate possible future market directions. Timmer said, "The Gulf War in 1990 raised oil prices from $41 to $100 (in today's dollars), but this shock lasted a short time and only led to a brief 19% pullback in the P/E ratio." He noted that the market is currently pricing in similar results, and since the rebound has already occurred, "we need to see this narrative continue for the current rally to be supported." Timmer also compared it to the inflation spike after the 2022 pandemic, when oil prices rose from $79 to $136 (in today's dollars). He said, "That oil price shock lasted longer, so the stock market adjustment time is longer too." He added that there were more factors at play, "including a large-scale Fed tightening cycle and a generational repricing of U.S. bond yields." Timmer stated that for investors, the key conclusion is that the duration of high oil prices will determine the severity of any market adjustment. Energy shocks should not be underestimated International Energy Agency (IEA) Executive Director Fatih Birol said on April 21 that the Middle East conflict is causing the world's most severe energy crisis in history. Birol stated that the energy crisis, combined with the fuel and natural gas supply issues from the Ukraine crisis, has had a huge impact, emphasizing that "this is indeed the largest crisis in history." IEA data shows that by early April, the amount of oil transported through the Strait of Hormuz had dropped from around 20 million barrels per day before the war to about 3.8 million barrels per day, with losses of over 13 million barrels per day even when alternative routes are considered. Birol had previously stated on April 13 that he hoped the strategic oil reserves would not need to be used again, but if measures need to be taken to address the energy shock caused by the U.S.-Iran conflict, the agency is prepared. He had also stated earlier this month that the global energy crisis is more severe than the energy crises of 1973, 1979, and 2022 combined, and he predicted that this crisis will accelerate the development of renewable energy, nuclear energy, and electric vehicles. Several top market analysts warned that the Middle East conflict had effectively blocked the Strait of Hormuz, causing the most severe disruption in oil supply in history, and current oil prices do not fully reflect this shock. Saad Rahim, Chief Economist at Tocqueville Group, said on Tuesday at a global commodities summit that the conflict has already disrupted 1 billion barrels of oil supply, and if the conflict continues, this figure could rise to 1.5 billion barrels. Frederic Lasserre, Head of Analysis at Commodity Trader Compagnie Generale de Geophysique, also pointed out that if the conflict lasts another month, the petroleum market will face a situation of bottoming out in terms of inventory. Amrita Sen, Co-founder and Research Director of Energy Aspects, even claimed that the volume of crude oil transported through the Strait of Hormuz may never recover to pre-war levels. Citi warned earlier this week that if the shipping in the Strait of Hormuz remains disrupted for another month, oil prices could rise to $110 per barrel. The institution pointed out that if this key passage remains closed for four weeks, global losses of crude oil and refined oil inventories due to the Middle East conflict are expected to reach about 1.3 billion barrels. Even if a ceasefire extension agreement is reached this week and shipping through the Strait of Hormuz and crude oil production gradually resumes in May, global crude oil and refined oil inventories are expected to decrease by about 900 million barrels by the end of June - including 500 million barrels already lost, and an additional 400 million barrels lost due to delayed restarts and conflict damage. Citi further warned that if the closure of the Strait of Hormuz persists for two months, global supply could decrease by about 1.7 billion barrels, and oil prices could rise to $130 per barrel. However, even if the conflict ends this week, Citi predicts that by the end of June, global crude oil and fuel inventories will be at their lowest levels in eight years. The bank said that assuming a quick return to a daily surplus of 1 million barrels in supply after the conflict, rebuilding inventories may take more than two years. High oil prices suppress stock market performance Although the situation in the Middle East has eased compared to before, the possibility of the Middle East conflict restarting still exists due to the unclear prospects for peace talks between the U.S. and Iran. Oil prices have fallen from their highs reached during the initial stages of the war when the Strait of Hormuz was blocked, but they remain at relatively high levels. As of the time of writing, Brent crude oil futures were trading at $106.68 per barrel, an increase of nearly 50% since the pre-war level on February 27. It is worth noting that in recent times, investors have largely treated headlines related to the Middle East war as trading noise and have re-embraced U.S. stocks, led by tech stocks, in the latest earnings season showing the resilience of corporate earnings fundamentals. However, high oil prices are putting pressure on stock market prospects through cost, inflation, and policy pressures. Firstly, high oil prices will push up companies' energy and raw material costs, eroding their profits. Secondly, high oil prices raise inflation through two paths: directly in energy consumption such as gasoline and heating oil; and indirectly through the transmission of production costs to end consumer goods, resulting in more widespread price increases. Finally, inflation upticks directly limit central banks' monetary policy flexibility. Before the conflict broke out, the market generally expected the Fed to cut rates in 2026, but with rising oil prices and renewed inflation worries, the expectation of rate cuts has largely evaporated, and there is even discussion of the possibility of another rate hike within the year. Persistently high interest rates mean a lower present value of future cash flows, particularly impacting growth stocks, tech stocks, and other high-valuation stocks. The short-term trend of global stock markets currently highly depends on the evolution of the Middle East situation. As long as the Strait of Hormuz remains closed, it will be difficult for oil prices to substantially decline, and global market volatility may continue to remain high, with short-term pressure on risk assets. Several institutions, including Citi, BlackRock, and JP Morgan, have recently expressed cautious views after previously bullish on U.S. stocks. Goldman Sachs warned that although U.S. stocks have recently rebounded strongly and set new highs, there is limited upside to the market's continued rise and faces higher risks of a pullback, making it not an ideal time for investors to increase their exposure to stocks. The team led by Goldman Sachs Asset Allocation Research Director Christian Mueller-Glissmann released a report on Tuesday, stating that based on their research framework, the risk of a further market pullback remains high, while the potential for further upside is limited. The risk-return structure does not support increasing exposure to risk assets. Goldman Sachs pointed out that its framework considers stock valuations, macroeconomic conditions, and policy catalytic factors, including risks related to the U.S.-Iran war. These factors are currently weakening support for further market gains. Data shows that the S&P 500 forward P/E ratio has climbed back above 21 times, while the Citi Economic Surprise Index recently notably weakened, reflecting a decline in economic data supporting market expectations. The Goldman team stated that downward risks driven by valuations are on the rise again, while the business cycle environment is no longer as favorable. The bank's economists have downgraded their assessment of global growth and inflation combinations, and expect monetary policy easing to be less than previously anticipated, with related impacts likely to gradually manifest in economic data over the coming weeks. The report also noted that one of the key drivers of this recent rally in the U.S. stock market is the market's bet that the U.S.-Iran ceasefire can be maintained, and that the high oil prices will ease inflationary pressures. However, this also means that the stock market is highly sensitive to a resurgence in geopolitical tensions and energy price rebounds. If the conflict worsens again and drives oil prices higher, the market could face a greater impact. Goldman cited options market pricing, which suggests that traders currently believe there is a greater probability of a 10% decline in oil prices over the next month than a 10% rise, indicating that if oil prices unexpectedly spike, the negative impact on the market could be more severe. Wall Street veteran strategist Adney, who has accurately predicted market trends multiple times, recently pointed out that as Trump's statements about ending the war have been wavering and peace talks have evolved into a game of brinkmanship over the key Strait of Hormuz, he expects that this war will limit stock market gains until the conflict is resolved. He said, "It's hard to imagine things will truly end in the next few days or even weeks. The situation may remain quite chaotic." "I think the market might experience a period of consolidation - a kind of pattern that may last through the entire summer." However, although Adney remains cautious in the short term due to the uncertainty of the war situation, he still maintains his target of 7700 points for the S&P 500 index by the end of the year. A large amount of capital is still waiting on the sidelines to enter the market, and corporate earnings performance continues to be strong. Adney stated that analysts' optimistic forecasts for earnings are one of the reasons why the U.S. stock market did not experience a further significant drop after the bombing of Iran began at the end of February. Adney said, "Even during the sell-off, earnings were still rising - almost as if analysts didn't receive the news that war had broken out." He added, "I don't think the market will retest the low point of March 30." "There is too much capital waiting off-market to enter during a correction."