UBS downgraded its outlook for the S&P 500 because of the U.S. war with Iran. What should investors expect?
Earlier, Wells Fargo also cut its expectations, while Citi maintains the same opinion
UBS downgrades S&P 500 index forecast due to conflict in the Middle East / Photo: Unsplash/Sergio Zhukov
Investment bank UBS lowered its forecast for the U.S. broad market index S&P 500 for 2026, pointing to persistently high oil prices due to conflict in the Middle East that could slow U.S. economic growth and delay rate cuts.
Details
Analysts at UBS on April 6 cut their target level for the S&P 500 at the end of 2026 from 7,700 to 7,500 points, and from 7,300 to 7,000 points for the middle of the year, Reuters reports. The bank's new forecast calls for the index to rise about 13% from its April 6 closing level of 6,611.83 points. Since the start of the conflict with Iran on February 28, the index has lost about 4%.
In the baseline scenario, UBS expects tensions in the Middle East to ease in the coming weeks, allowing oil and gas supplies to gradually recover. However, it will take longer to return production to levels that were before the US-Iran war due to infrastructure damage, which will keep oil costs high.
Higher energy prices will moderate economic growth and support inflation, Reuters quoted UBS analysts as saying. This is likely to translate into a later start of rate cuts by the U.S. Federal Reserve: the bank now forecasts two rate cuts of 25 basis points in September and December, while previously expected such steps in June and September.
UBS estimates that as the impact of the conflict with Iran fades, the market will be supported by solid earnings growth, the Fed's relatively soft stance on rates and the continued adoption and monetization of artificial intelligence.
What's in the markets
Major U.S. market indices are declining in trading on April 7. At the time of publication of this text, the S&P 500 was losing 0.6%, the technology sector index Nasdaq Composite was falling by 0.87%, and the blue-chip index Dow Jones was falling by 0.6%.
At the end of March, Wells Fargo also lowered its target level for the S&P 500 from 7,800 to 7,300 points. In early April, Citi retained its target of 7,700 points, pointing to the high profits of American companies.
This article was AI-translated and verified by a human editor
