Wells Fargo has lowered its year-end S&P 500 price objective to 7,300 from 7,800, a revision the firm attributes primarily to the Iran war, an outcome that had not been incorporated into the brokerage's baseline as it looked toward 2026. The change comes as the bank maintains a structurally bullish view on U.S. equities over a longer horizon but acknowledges growing near-term risks.
The firm's proprietary PRSM model - which stands for Profits, Rates, Sentiment, and Macro - now implies an expected return of about 14% for the S&P 500 over the next 12 months. Wells Fargo's forecast for index earnings per share is $315 in 2026 and $365 in 2027. To reduce the distorting influence of recent market selling, the bank used the average price across February 28 and March 30 as its starting point for the analysis.
Using its war pricing framework, Wells Fargo found that equity markets are, for the first time in the model's readings, pricing in greater risk from the conflict than from movements in oil. That dynamic has coincided with a substantial contraction in valuations in some market segments: the Nasdaq 100's forward price-to-earnings ratio has fallen roughly 29% from its peak, and about one-third of S&P 500 constituents trade at least one standard deviation below their five-year average forward P/E.
"We believe a lot has been priced into stocks already," Kwon wrote. He added that absent a firm resolution to the geopolitical situation, the analyst team sees few obvious upside catalysts and views the near-term market setup as skewed more negatively.
Kwon characterized the immediate macro backdrop ahead of incoming economic data as a lose-lose scenario. Strong economic readings would reduce the likelihood of Federal Reserve rate cuts, while weak data would raise concerns about stagflation and could prompt further selling pressure. He also highlighted the potential for second-half inflation to re-emerge as a key risk, noting that Wells Fargo's inventory-based model points to upward price pressure relative to current levels.
Despite these cautions, Kwon remains constructive on the market's structural prospects, citing five supporting factors: a less severe oil shock than seen in prior historical episodes; a meaningful valuation reset across equities; advantages for U.S. energy independence compared with international peers; a possible upswing in free cash flow for large hyperscale technology companies; and an accelerating restocking cycle helped by lower tariffs and reduced supply-chain disruption.
Equity fund flows have also shown resilience since the onset of the conflict, the analyst noted, with consistent inflows suggesting investors are hedging exposures rather than outright exiting markets. The brokerage also observed that analyst price target upgrades exceeded downgrades in March.
Summing up, Wells Fargo's team said they continue to expect earnings per share resilience even as the headwind from the conflict intensifies: "We concur that the impact will be more mitigated and continue to expect EPS resilience. However, the headwind is building exponentially each day," the analyst added.
Summary
Wells Fargo trimmed its S&P 500 year-end target to 7,300 from 7,800 because of the Iran war, while its PRSM model still projects a roughly 14% 12-month return and forecasts S&P 500 EPS at $315 in 2026 and $365 in 2027. Valuations have weakened in key segments, policymakers' decisions and incoming data create a difficult short-term backdrop, and inflation pressures later in the year are a flagged risk. Nonetheless, the bank retains a longer-term constructive stance supported by valuation adjustment, energy advantages, hyperscaler cash flow, and a restocking cycle.