The Iran-U.S. war is a major risk! Bank of America lowers the year-end target price for the S&P 500 but remains bullish in the long term

Ask AI · How does Wells Fargo’s long-term bullish view respond to short-term risks?

Cailian Press, April 1 (Editor: Huang Junzhi) Wells Fargo analyst Ohsung Kwon has lowered his year-end target price for the S&P 500 index from 7,800 points to 7,300 points, and said that the Iran war is the main risk—something that is not part of the bank’s fundamental expectations for 2026.

Despite lowering the target price, Kwon still emphasized confidence in the market’s overall direction, saying: “We remain structurally bullish on the market.”

Wells Fargo’s war-pricing model also shows that, for the first time, stock prices are reflecting the risk brought by the conflict as greater than the risk brought by oil. The expected P/E ratio (P/E) of the Nasdaq 100 index has contracted by 29% from its peak, while about one-third of the stocks in the S&P 500 are currently trading at more than one standard deviation below their five-year average expected P/E ratio.

In his latest report, Kwon noted, “We believe the stock market has already digested a lot of information. However, aside from clear solutions, we don’t see many upside catalysts, and we think the current situation is more unfavorable for the stock market.”

In addition, with a large batch of economic data set to be released this week, Kwon describes the current macroeconomic situation as a ‘double-loss’ scenario. He pointed out that strong economic data means the likelihood of the Fed cutting interest rates decreases, while weak data would intensify concerns about stagflation and give investors more reasons to sell.

Kwon also pointed out that inflation in the second half of the year is a key risk, and Wells Fargo’s inventory-based model shows that prices will face upward pressure relative to current levels.

Remain Structurally Bullish

Despite risks in the short term, Kwon remains optimistic about the U.S. stock market’s structural outlook and highlighted five key factors:

The impact range of the oil crisis is smaller than that of past historical events;

Valuations have undergone significant adjustments;

The U.S.’s energy independence is better than that of other countries;

Free cash flow of mega-cap companies may be rising;

With tariff reductions and supply chain disruptions, the inventory-replenishment cycle is accelerating.

Meanwhile, Kwon also noted that since the outbreak of the U.S.-Iran conflict, market behavior has not followed the typical safe-haven pattern. Equity fund flows have also shown surprising resilience: not only has the stock market not seen a massive sell-off, it has continued to attract capital inflows.

“Since the war broke out, capital has continued to flow into the stock market, which stands in sharp contrast to prior periods of volatility,” he wrote, adding that this suggests investors are choosing to hedge their risk exposure rather than exit positions, indicating that they expect the economic impact to be temporary.

In addition, the number of times analysts raised their target prices in March exceeded the number of downgrades, which indicates that people remain optimistic about the sustainability of corporate earnings— which also corroborates the view from another angle.

“We agree that the impact will ease, and we continue to expect earnings per share to remain resilient. However, adverse factors are increasingly compounding at an exponential rate,” the analyst added.

(Cailian Press, Huang Junzhi)