UBS lowers the target level for the S&P 500 index in 2026, expecting Middle East conflicts to ease within a few weeks

Ask AI · How do high oil prices delay the Federal Reserve’s rate cut process?

Cailian Press, April 7 (Editor: Niu Zhanlin) UBS Global Wealth Management has recently lowered its target level for the S&P 500 index in 2026, citing that persistently high oil prices may exert pressure on U.S. economic growth and inflation, which stems from ongoing conflicts in the Middle East.

In a research report released on April 6, the firm lowered its year-end 2026 S&P 500 target from 7,700 points to 7,500 points, while also reducing its mid-year target from 7,300 to 7,000.

Since the U.S.-Israel war against Iran began on February 28, the benchmark index has fallen approximately 3.9%. Rising oil prices and geopolitical uncertainties have prompted investors to withdraw from the stock market.

U.S. President Trump reiterated on Monday that if Iran does not reopen the Strait of Hormuz by 8 p.m. Eastern Time on Tuesday, the U.S. will destroy Iran’s power plants and bridges.

Some U.S. officials said that before the deadline, the differences between the U.S. and Iran are too great to bridge. Meanwhile, Iranian officials have informed mediators that they expect the U.S. to continue attacking their country, and Israel will also continue airstrikes to eliminate senior Iranian officials.

These officials added that privately, Trump is more pessimistic about reaching an agreement with Iran and is expected to issue a final strike order on Tuesday night, but Trump’s decision could change depending on the progress of negotiations overnight.

However, under UBS’s baseline scenario, the bank expects the Middle East conflict to gradually ease over the coming weeks, allowing energy supplies to recover gradually.

UBS pointed out that restoring oil and gas production to pre-conflict levels will take longer because infrastructure has been extensively damaged, and full capacity recovery itself also requires time, which could keep oil prices high for an extended period.

UBS stated: “Higher energy prices may to some extent slow economic growth and marginally sustain stronger inflation pressures. Therefore, it is very likely to delay the timing of further rate cuts by the Federal Reserve.”

Last month, the firm also postponed its expectations for Fed rate cuts, now expecting a 25 basis point cut in September and December, instead of June and September as previously forecast.

Despite lowering the index target, based on current projections, this target still implies about a 13.43% upside potential compared to the recent close of the S&P 500 at 6,611.83 points.

UBS reaffirmed its “attractive” view on U.S. stocks and maintained its forecast of $310 earnings per share for the S&P 500 in 2026.

UBS added: “As the negative impacts of the war gradually fade, we expect the stock market to be supported by multiple factors, including still-robust profit growth, the overall supportive stance of the Federal Reserve despite the delayed timing of easing, and the continued promotion and commercialization of artificial intelligence.”

Overall, UBS has not changed its overall positive outlook on the U.S. stock market, only adjusting the timing and level of its target points to reflect the ongoing impact of the war.

(Cailian Press, Niu Zhanlin)