In February, the U.S. and Israel launched airstrikes against Iranian military and leadership targets, prompting Iran to retaliate with missiles and drones across the Middle East. Those retaliatory attacks have disrupted oil shipments through the Strait of Hormuz, a waterway in the Persian Gulf that serves as a transit route for 20% of global oil and liquefied natural gas.

The strait has effectively been closed for over a month, with the number of ships crossing the waterway daily falling to single digits, down from more than 100 before the war. In turn, oil prices have jumped to a multiyear high. Brent crude oil (an international benchmark) topped $127 per barrel in early April, a level last seen in the summer of 2022.

When the conflict started, the S&P 500 (^GSPC +0.80%) declined 9% from its high, but the index has since recouped its losses as investors have become increasingly confident in a resolution. However, the stock market’s rebound may in jeopardy. Hedge fund billionaire Ken Griffin believes a global recession would be unavoidable if the Strait of Hormuz remains closed for six to 12 months.

In that scenario, would the stock market could crash? Here’s what investors should know.

Historically, the S&P 500 has suffered steep losses during recessions

Ken Griffin’s opinion carries weight because he runs the most successful hedge fund in the world as measured by net gains, but he is not the notable person to sound a recession warning due to the Iran conflict. In March, Moody’s chief economist Mark Zandi wrote, “If oil prices remain elevated for much longer (weeks and not months) a recession would be difficult to avoid.”

The stock market is a forward-looking reflection of the economy. Investors make decisions based on future expectations for corporate profits, which are impacted by economic variables like gross domestic product (GDP) growth and interest rates. It makes sense that a recession (defined as a significant and widespread decline in economic activity that lasts more than a few months) would be bad news for the stock market.

The U.S. economy has suffered 10 recessions since the S&P 500 was created in March 1957. The following chart shows the benchmark index’s peak-to-trough decline around each of those events.

Data source: Goldman Sachs Research.

As shown in the chart, the S&P 500 has declined by an average of 32% during recessions, meaning the index has typically dropped into a bear market.

So does that mean the stock market will crash if a recession materializes? It depends on the precise definition — a market crash usually means a sudden drawdown of at least 20% — but the short answer is yes, a crash is certainly possible during an economic contraction.

Wall Street expects the S&P 500 to advance 7% in the remaining months of 2026

The stock market could perform poorly even if a recession doesn’t materialize. Chicago Federal Reserve Bank President Austan Goolsbee recently warned that elevated oil prices coupled with inflation caused by President Trump’s tariffs could cause consumer spending to slow. That would be problematic because consumer spending is the primary driver of economic growth.

Wall Street currently expects S&P 500 companies to report an acceleration in earnings this year, but analysts could cut estimates if consumer spending shows signs of weakness. And any downward revisions to forward earnings forecasts could drag the stock market lower, especially with the S&P 500 currently trading at 20.4 times forward earnings, a premium to the 10-year average of 18.9 times forward earnings.

Nevertheless, Wall Street remains relatively optimistic. Among analysts at 21 investment banks and research institutions, the S&P 500 has an average year-end target price of 7,459, according to Yardeni Research. That implies 7% upside from its current level of 6,967. But no matter what happens in the next few months, investors should focus on creating long-term wealth (not navigating short-term volatility).