By Teresa Rivas
Stocks have fallen so much since the start of the Iran war that Wall Street's most bearish target now implies nearly a double-digit gain by the end of 2026.
Although stocks are wavering on Monday, markets have been in a major slump since the conflict began. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite are all down for five straight weeks and hit their lowest closing levels since August on Friday. The Dow entered correction territory that day, just as the Nasdaq did on Thursday.
In short, while there are three more quarters for equities to turn things around, many investors may be feeling much less bullish than they did at the start of the year.
One silver lining is that even the most downbeat year-end S&P 500 target now implies nearly 10% upside.
Stifel strategists led by Thomas Carroll and Barry Bannister reiterated their 2026 estimate of 7000 for the index on Monday. That may have looked overly pessimistic when the S&P 500 closed at 6978.60 near the end of January, but is now 9.4% above its recent level of 6400. Still, it embeds a fair bit of caution.
The firm continues to believe that, although earnings per share overall will grow in the mid-teens, that will be offset by compression in the S&P 500's multiple, with valuation being held down by yields and credit risk. (At the start of the year, the S&P 500 had a forward price-to-earnings ratio of about 22 times, on par with its peak multiple in 2021 and near the record of 24 times in 2000.)
"The current spike in yields foreshadows weaker employment data while elevated (oil feed-through) inflation limits [the Federal Reserve's interest] rate flexibility," Carroll writes. "Additionally, rising credit spreads capture economic concerns, which manifest as financial stress in tech and private credit and reduce valuation."
Those may be more immediate concerns, as private credit withdrawals have grabbed headlines in recent weeks, while the bond market has gone from anticipating rate cuts to bracing for potential hikes, but there are other worries too, Stifel notes.
Consumers--whose consumption makes up two-thirds of the U.S. gross domestic product--are continuing to be squeezed, as the job market remains tough and real wages (accounting for inflation) are falling. In fact, tailwinds from 2025 are becoming headwinds, as energy prices climb and the K-shaped recovery starts to crumble: "Paper-rich consumers supported spending by running down savings, however this is already dissipating,' Carroll writes.
The other pillar of the rally, artificial intelligence enthusiasm, looks shaky too. Big tech players have pledged billions to its development, putting "hyperscalers under siege as AI spending eats all the cash flow; turning to debt weighs on their P/Es," he writes.
Therefore, the firm believes that investors should focus on value over growth this year, as it has recommended previously.
Many of the factors that Stifel is concerned with would remain even if the Iran War were settled tomorrow; in fact the firm has been far less optimistic about the market's potential returns long before the conflict began. Nonetheless, after the beating stocks have taken, suddenly 7000 on the S&P 500 sounds aspirational rather than merely adequate.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 30, 2026 14:42 ET (18:42 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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