UBS Global Wealth Management has revised down its S&P 500 index targets for 2026, citing the prospect of sustained higher oil prices tied to the ongoing conflict in the Middle East and the resulting pressure on U.S. growth and inflation. In a research note dated April 6, the brokerage trimmed its year-end index target to 7,500 from 7,700 and lowered its mid-year target to 7,000 from 7,300.
The benchmark S&P 500 has dropped roughly 3.9% since the Iran war began on February 28, reflecting a pullback from equities as oil prices spiked and geopolitical risks rose. UBS set out a base-case scenario in which the Middle East conflict eases over the coming weeks, allowing energy flows to resume gradually. But the firm stressed that returning oil output to levels seen before the conflict will take longer, citing widespread infrastructure damage and the time required to restore full capacity. That prolonged disruption, UBS said, could keep oil prices elevated.
"Higher energy prices are likely to modestly weigh on economic growth and keep inflation pressures firmer at the margin. In turn, this will likely delay the timing of additional Federal Reserve rate cuts," UBS said in the note.
Last month the brokerage adjusted its expectations for Fed easing, now forecasting two 25-basis-point rate cuts in September and December. This represents a delay relative to its prior outlook, which had predicted cuts in June and September.
Even after reducing its index targets, UBS's current forecast implies a 13.43% upside from the S&P 500's last close of 6611.83. The firm reiterated an "attractive" stance on U.S. equities and kept its 2026 S&P 500 earnings forecast unchanged at $310 per share.
UBS added that, as the direct negative effects of the war begin to fade, equities should receive support from a combination of still-solid profit growth, a Federal Reserve that remains broadly supportive even if policy easing is delayed, and the continued adoption and monetization of AI.
Market participants will be watching both energy markets and the path of the conflict closely. The duration of elevated oil prices and the pace at which damaged production capacity can be restored are key variables for growth, inflation, and the timing of monetary easing.