Recently, the United States and Iran held negotiations in Islamabad, the capital of Pakistan. However, judging from the public statements of both sides, almost all core issues cannot be discussed, and even touched the "red line" clearly drawn by the other side.

Although the news of the negotiations briefly sent risk assets such as the stock market up slightly (as the market hoped for a ceasefire in the Middle East), Wall Street quickly calmed down. Strategists warn: The conflict has already caused damage in inflation, energy supply and the Fed's policy space that is difficult to repair quickly.

As a result, major financial institutions have adjusted their expectations: generally raised their inflation forecasts; postponed the expected rate cuts; and became more cautious about riskier assets such as stocks

Specific actions include: BlackRock has downgraded its risk asset allocation from "overweight" (bullish) to "neutral"; Wells Fargo lowered its year-end target price for the S&P 500 index from a higher level to 7,300 points; Although most other institutions have not changed their target prices for the time being, their attitude is obviously hesitant, admitting that the current situation is too uncertain

Strategists have raised their inflation expectations, and interest rate cuts may take longer

A number of Wall Street strategists admitted that they did not expect a conflict in the Middle East at the beginning of the year, so their previous forecasts did not take the crisis into account. Now, they are reevaluating stock market targets and interest rate trends to do a "stress test".

JPMorgan: Inflation may rise, but it is expected to fall next year.

David Kelly, chief global strategist at JPMorgan Asset Management, said: "We didn't expect the Middle East to fight at the beginning of the year, nor did we expect U.S. gasoline prices to rise to more than $4 per gallon." He expects inflation to reach 4% year-on-year this summer, which will delay the Fed's return to the "neutral rate" (about 3%)

However, he is relatively optimistic, believing that current inflation is mainly a temporary shock (such as rising oil prices), and inflation may fall below 2% by 2027, when the Fed may be able to cut interest rates once or twice.

Goldman Sachs: The Fed will "hold its still", but there may be a rate cut at the end of the year.

Alexandra Wilson-Elizondo of Goldman Sachs Asset Management believes that the Fed will not act easily until the direction of the economy and inflation is clearer and will maintain a "clear wait-and-see" attitude.

But she still expects a rate cut later this year. She also mentioned that the ECB may raise interest rates instead - because its only task is to control inflation, unlike the Fed, which also has to take care of employment and growth

Allspring: Interest rate cut expectations have been significantly delayed.

Ann Miletti, head of equities at Allspring Global Investments, had expected the Fed to cut interest rates twice this year, but now she's delayed one of them until 2027. "The economic slowdown is worse than we think, and inflation is rebounding more strongly," she said.

Market divergence has increased, and funds have begun to flow to "safe havens" such as bonds

As short-term U.S. Treasury yields rose, some investors began to look for opportunities in fixed-income assets such as bonds rather than blindly chasing riskier assets such as stocks.

Goldman Sachs Asset Management: There is a good opportunity for U.S. bonds, but the risk of corporate bonds has risen.

Alexandra Wilson-Elizondo of Goldman Sachs Asset Management pointed out that since the outbreak of the conflict in the Middle East, the two-year U.S. Treasury yield has risen from about 3.3% to 3.8% (up nearly 0.5 percentage points), which provides investors with a good opportunity to reallocate bonds, especially U.S. Treasuries.

But she also reminded that the risk of corporate bonds is increasing. As the economic outlook deteriorates and the likelihood of default rises, the market is "repricing" credit risk – meaning the credit cycle may be turning downward.

BlackRock: Temporarily withdraw from high-risk assets and are optimistic about European bonds.

BlackRock Investment Research Institute last month adjusted the allocation of risk assets such as stocks from neutral (overweight) back to neutral. Dean Jean Boivin said: "We may re-favor risk assets in the future, but we may also conclude the opposite - if supply shocks and 'stagflation' (economic stagnation + high inflation) become the main lines, the market will be tougher."

At present, BlackRock is not optimistic about long-term US Treasuries (maintaining an "underweight"), but prefers Eurobonds because they expect long-term interest rates to continue to rise.

Evercore strategist: There is still hope for the stock market, but the key is oil prices.

Julian Emanuel, chief strategist at Evercore ISI, is relatively optimistic. He believes that corporate earnings remain solid and bond yields are still within control, which supports the stock market.

But he emphasized a key premise: "If WTI crude oil prices can stabilize below $90 for the rest of the year, the stock market is expected to perform well."

In other words, oil prices are the biggest variable that determines the direction of the market.

Institutions have different views on the target price of the stock market: some maintain it, some lower

At present, most investment institutions have not changed their annual stock market target price for the time being, but the ideas and confidence behind them are actually very different.

Pictet: The news of the ceasefire has put operations on hold.

Luca Paolini, chief strategist at Pictet Asset Management, said that due to the news of a possible ceasefire in the Middle East on Tuesday, their team, which was originally preparing to adjust its positions, decided to wait and see.

His current forecast is: the S&P 500 index will end the year at 7,250 points; European stock markets rose about 10% for the year; The 10-year Treasury yield will fall below 4.25%. Pictet (a Pictet) also expects the Federal Reserve and the Bank of England to cut interest rates once each this year; The European Central Bank is on hold.

Citi: Stay optimistic, but admit that the risks are not small.

Scott Chronert, head of U.S. equity strategy at Citigroup, still insists on the optimistic expectations he made in December last year, arguing that "many of the problems we are seeing now - such as high oil prices and geopolitical conflicts - seem to be temporary."

But he also admitted that there are several major risks that cannot be ignored: if oil prices remain high for a long time, they will force interest rates to remain high; increased pressure on the private credit market; AI development may bring structural shocks; If Trump returns to the White House, his tariff policy may also disrupt the market.

He also pointed out that only a few technology giants such as Nvidia and Broadcom have been raising their overall profit expectations recently, while other sectors have performed weakly, and the market rotation has been stuck. "This is a market that is still looking for direction, and it is too early to draw conclusions," he said.

Wells Fargo: One of the few institutions that lowered their target prices.

Wells Fargo was one of the few institutions to explicitly downgrade its forecast, lowering its target price by the end of the S&P 500 from 7,800 points to 7,300 points.

Its chief equity strategist, Ohsung Kwon, explained: The US economy is now less sensitive to oil prices than in the past; Recent tax rebates can also ease household consumption pressure. But he stressed: "Unless we see a significant deterioration in corporate earnings, we still believe that the stock market will rise steadily throughout the year."

Jingtai View|Stabilize the word and seize structural opportunities

The market always wants to use a positive line to announce the end of the war, but the economy will not forgive a fire so quickly. When the smoke of gunpowder in the Middle East dissipates, what is left is not a peace dividend, but higher fuel bills, a later interest rate cut calendar, and more fragile consumer wallets.

Stocks: Focus on "oil-resistant" profit engines

avoid energy-sensitive sectors (aviation, logistics, consumer retail); over-allocation of AI infrastructure (Nvidia, Broadcom), defense (geopolitical risk premium), essential consumption (rigid demand); Be wary of tech platforms that rely on ads or free users – valuations under pressure under high interest rates.

Fixed income: short duration + high rating preferred

The two-year Treasury yield of 3.8% is attractive; investment-grade corporate bonds are better than high-yield bonds to avoid credit sinking; European core Treasury bonds (Germany, France) can be considered to hedge against the upward risk of U.S. bond interest rates.

Commodities: Gold remains the ballast stone

Geopolitical uncertainty has not resolved, and the trend of central bank gold purchases continues; If oil prices rise again, the hedging value of gold will be highlighted.