(Bloomberg) -- JPMorgan Chase & Co. strategists cut their price target on the S&P 500 Index, saying the upside potential for risk assets is “more constrained” by a war in the Middle East.

Strategists led by Fabio Bassi slashed their year-end estimate to 7,200 points from 7,500, citing a supply shock stemming from the interruption of oil flows through the Strait of Hormuz that threatens to crimp corporate profits and economic growth.

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“Geopolitical concerns and higher energy prices for longer will drag global growth lower and inflation higher,” Bassi wrote in a note to clients published on Friday. “We recommend investors to stay invested with downside hedges in equities, and we hold to these hedges given the modest correction year-to-date.”

Equity markets have been stress-tested since the conflict in the Middle East broke out three weeks ago. The S&P 500 fell 1.5% on Friday to 6,506.48, the lowest level in six months, and notched its fourth-straight week of declines, the longest losing streak in more than a year.

The firm’s new target still implies an 11% gain for the S&P 500 between Friday’s close and the year-end.

Hostilities between Iran and the US have added a new stress point to the market, which is already dealing with other headwinds, including fear of disruption from artificial intelligence as well as private-credit writedowns. The surging oil prices threaten earnings growth, Bassi said.

“On earnings, ~$110 oil through year-end implies a 2–5% trim to S&P 500 consensus EPS, with more pronounced pressure if crude grinds higher,” Bassi wrote in the note. “The near-term equity risk is more about multiple compression as investors reassess growth and liquidity than a deep earnings recession.”

Earlier this week, JPMorgan strategists said investors were failing to price the potential economic damage from soaring energy prices and other strains caused by a prolonged shutdown of the Strait of Hormuz, despite the fact that four out of five oil shocks since the 1970s have led to a recession.

--With assistance from Felice Maranz.

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