Wall Street Is Slashing Stock Market Targets Over the Iran War. They've Been Wrong 5 of the Past 6 Years.

While the market has reversed course in recent weeks, it remains to be seen where the S&P 500 (SNPINDEX: ^GSPC) will end up at year's end.

Wall Street's perfomance has been mixed, but in the wake of the Iran war, much of the Street has been slashing its price targets. JPMorgan Chase cut its forecast, saying the conflict means a "more constrained" upside. Wells Fargo followed a few days later, trimming its target from 7,800 to 7,300, and several other firms have dialed back expectations as well.

Image source: Getty Images.

It makes sense, with oil prices elevated -- the effects of which are only beginning to be felt -- and consumer confidence hitting record lows, it's easy to believe the market will underperform this year.

But history has a lesson for investors who put too much stock in Wall Street's targets. Let's look at how accurate these forecasts have actually been -- and what patterns emerge.

Wall Street's forecasting track record isn't great

Here's the track record:

Data sources: macrotrends.net, Avantis Investors.

The pattern is striking: In five of the past six years, Wall Street significantly underestimated where the market actually finished -- in some cases by nearly 30%. The lone exception was 2022, when a bear market driven by a rapid rise in interest rates caught nearly everyone off guard.

So in general, Wall Street tends to miss on the low side. That's worth remembering when you see another downward revision.

Why 2026 could be different

The 2026 setup has echoes of April 2025, when the market reacted to massive tariffs from the Trump administration. These were significantly scaled back relatively quickly, and the market dip was short-lived.

Of course, there's plenty of reason to believe this might be different. While there has been diplomatic progress and a deal might soon be reached, the flow of oil and natural gas through the Strait of Hormuz could be affected for months to come, if not longer. Critical infrastructure throughout the area has already been destroyed, and shipping rates are likely to be elevated for some time, even if a peace deal is reached. Operators will be wary of a re-escalation.

If a deal isn't reached and the waterway remains shut for months, a global recession would be hard to avoid.

At the end of the day, you have to take any prediction with a heavy grain of salt, even if it is from Wall Street. And while the risks to the global economy are very real, investors who stick it out usually come out ahead in the short term. In the long run, they always do.

For those of us who lack a crystal ball, time in the market will always beat timing the market.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.