Still a Wall of Worry, not a brick wall

The Iran conflict has become a persistent source of headline risk, but Federated Hermes continues to view it as part of the market’s “Wall of Worry” rather than a lasting barrier to equity gains. Their base case assumes the conflict is contained and ends relatively soon, leaving some ongoing energy risk and a higher oil-price floor, yet allowing investors to refocus on reaccelerating US growth, rising earnings and progress toward an S&P 500 target of 7,500 in 2026.

A more optimistic scenario envisions regime change in Iran that ultimately lowers energy risk premiums and supports stronger global growth, though likely after a sharper near-term correction. The downside scenario involves a broader regional escalation that could send oil prices sharply higher and trigger a temporary stagflationary shock and equity drawdown, but not a prolonged bear market.

Against this backdrop—alongside AI-driven capital spending shifts and pockets of stress in retail private credit—Federated Hermes advises staying disciplined and aligned with the base case rather than repositioning around low-probability tail risks.