Wells Fargo Cuts S&P 500 Target Amid Rising War Risks
Wells Fargo analyst Ohsung Kwon has lowered the year-end target for the S&P 500 to 7,300 from 7,800. The revision reflects growing risks linked to the Iran war, which were not included in the firm’s original base-case outlook for 2026. Despite this adjustment, the analyst maintains a positive long-term view on U.S. equities.
PRSM Model Points to Moderate Upside
Wells Fargo’s proprietary PRSM model—covering profits, rates, sentiment, and macro factors—now projects a 14% return over the next 12 months. The bank forecasts S&P 500 earnings per share at $315 in 2026 and $365 in 2027. To reduce the impact of recent market volatility, the model uses average pricing from late February to late March.
Stocks Now Pricing War Risk Over Oil
According to the firm’s analysis, equity markets are now factoring in greater risk from geopolitical conflict than from oil price shocks for the first time. This marks a significant shift in how markets are interpreting macro risks.
Valuations Reset Across Major Indices
The Nasdaq 100 has seen its forward price-to-earnings ratio drop by 29% from its peak. Meanwhile, around one-third of S&P 500 companies are now trading at valuations one standard deviation below their five-year average, signaling a broad reset in equity pricing.
Limited Upside Catalysts in the Near Term
Kwon noted that much of the negative news appears already priced into stocks. However, without a clear resolution to the conflict, upside catalysts remain limited. He warned that the current setup leans more negatively for equities in the short term.
A “Lose-Lose” Macro Environment
The analyst described the current macro backdrop as a “lose-lose” scenario. Strong economic data could reduce the likelihood of rate cuts by the Federal Reserve, while weaker data may increase fears of stagflation, both of which could weigh on markets.
Inflation Risks and Second-Half Outlook
Inflation remains a key concern for the second half of the year. Wells Fargo’s inventory-based model suggests that price pressures could rise further from current levels, adding another layer of uncertainty for investors.
Long-Term Bullish Case Remains Intact
Despite near-term headwinds, Kwon remains structurally bullish on the U.S. stock market. He highlighted several supportive factors, including a more contained oil shock compared to past crises, a meaningful reset in valuations, the U.S.’s energy independence advantage, improving free cash flow among major tech firms, and a potential restocking cycle driven by easing supply chain pressures.
Resilient Equity Flows Signal Investor Confidence
Equity markets have continued to attract inflows despite heightened volatility. Unlike previous periods of uncertainty, investors appear to be hedging their positions rather than exiting the market entirely. In addition, analyst upgrades outpaced downgrades in March, indicating underlying confidence.
Outlook: Risks Rising but Earnings Resilient
While the overall impact of the current environment may be manageable, Kwon cautioned that risks are increasing rapidly. Still, earnings resilience remains a key pillar supporting the market outlook.
