Economic and market damage from the weekslong war in Iran has been enough to curb potential gains for US stocks this year, according to Wells Fargo Securities LLC.
The bank downgraded its year-end target for the S&P 500 Index to 7,300 from 7,800, which would see a less than 7% gain for 2026 compared to the double-digit climb previously projected for the US equity benchmark. The cut comes as President Donald Trump signaled a desire to end US military operations in the Middle East.
The new figure still implies a roughly 12% rally from where the gauge is currently trading after five-straight weeks of losses spurred by geopolitical turmoil.
While Wells Fargo remains structurally bullish, "we're incorporating the emerging risk that wasn't our base case heading into the year," said chief equity strategist Ohsung Kwon in a note to clients published late Monday. He noted that inflation remains a key risk in the second half of the year.
Major US equity benchmarks rallied on Tuesday following a Wall Street Journal report that the president hinted to aides a desire to end the war, even as the Strait of Hormuz remains largely closed. Before the rebound, the S&P 500 on Monday teetered on the brink of a technical correction, defined as a drop of at least 10% from a recent high reached on Jan. 27.
What the White House intended to be a swift intervention in a longstanding Middle East conflict has now dragged on for over a month, driving the biggest oil supply shock in history. That's stoked fears of a pronounced energy crisis that could choke off economic growth and reignite inflation, though Wall Street pros have remained levelheaded thus far, expecting that Trump will prevent a longer conflict.
Strategists have mostly held off on significant changes to their expectations for US equities. Wells Fargo joins JPMorgan Chase & Co. in tempering its projections but both firms have so far just trimmed their forecasts modestly.
Meantime, Morgan Stanley's Mike Wilson said earlier this week the correction in US stocks is nearing an end, while strategists at Barclays Plc lifted their S&P 500 year-end forecast on expectations for strong profit growth despite the war.
Kwon points out that equities have seen consistent inflows since the war began, a stark contrast to previous episodes of volatility, suggesting that investors are hedging instead of outright selling. "However, the headwind is building exponentially each day."