Despite geopolitical turmoil and the disruptive threat of artificial intelligence repeatedly hitting markets since the start of the year, the S&P 500 index has shown remarkable resilience in the first two months. However, this calm surface belies the forward-looking expectations of Wall Street bulls for the end of 2026. According to Bank of America’s sell-side indicator, strategists have largely maintained their asset allocation weights, with the average 12-month price target for the S&P 500 still projecting a 10% increase from current levels, unchanged from the beginning of the year.
This optimism is primarily built on expectations of above-average U.S. economic growth and corporate earnings expansion. Notably, since the escalation of the conflict between the U.S. and Iran in the Middle East, which pushed energy prices higher, few institutional strategists have turned cautious as a result. Sameer Samana, head of Global Equity and Real Assets at Wells Fargo Investment Institute, believes: “The key lies in the fundamentals of the macroeconomy and corporate earnings, which geopolitical events have yet to materially impact. But the situation with Iran is different; if oil prices remain high for several months, it could threaten the global economy and corporate profits.”
The recent U.S.-Iran conflict is just the latest example of events dampening investor confidence this year. Prior to this, persistent inflation, shifting tariff policies, AI’s disruption of industries, pressures in the private credit market, and Trump’s highly controversial foreign policies had already weighed on the market. Matt Maley, chief market strategist at Miller Tabak + Co LLC, warned against this complacency: “Investors are blindly buying dips until the strategy stops working. The problem is that when the inevitable correction comes, many will suffer significant losses.” Savita Subramanian, head of Equity Strategy at Bank of America, also pointed out that despite changes internally within the market and a sharp downgrade in booming growth areas, market sentiment remains robustly optimistic.
However, the core logic underpinning the stock market rally—the profitability of U.S. corporations—has recently shown signs of wavering. During the latest earnings season, although S&P 500 companies reported a 13% profit growth, beating expectations by nearly 6 percentage points, it failed to boost investor confidence. Between the earnings releases of companies from JPMorgan (JPM) to Walmart (WMT), the S&P 500 index actually fell by 1.7%.
Meanwhile, red flags are also appearing in the credit market. Alternative asset manager Blue Owl Capital (OWL) recently suspended redemptions for one of its funds and began selling loans to raise cash, citing increased borrower stress and rising interest costs. This foreshadows that a credit crunch and potential default risks could spill over into corporate earnings, especially in highly leveraged industries. Maley warned: “It would be a serious mistake to count on the Fed or Trump’s policies to prevent any downturn. Eventually, one of these issues will lead to downward earnings revisions, sparking market panic.”
Although U.S. stocks rebounded slightly from lows on Tuesday, the market still seems to be betting that Trump can control the shockwaves from crises triggered by his policies, much like he has in the past. However, in light of the situation with Iran, Wall Street strategists are cautioning against relying on the so-called “Trump put” any longer. Bob Elliott, chief investment officer at New York-based investment firm Unlimited, analyzed: “Once a war starts, it has its own dynamic. Intervening in the market isn’t as easy as announcing tariffs on ‘Liberation Day’—back then, he had complete control over the policy options.”
