Wells Fargo raised its year-end 2025 target for the S&P 500 to 7,100, citing improving market liquidity and a contrarian buy signal based on investor sentiment trends.
Analyst Ohsung Kwon noted that the bank’s Sentiment Indicator dropped to -0.99 last week, approaching the -1.00 level that historically marks a buying opportunity. According to Kwon, similar readings in the past have resulted in average gains of 7.5% in the S&P 500 over the next three months, with positive returns in nine of the last ten cases. These environments, he added, tend to favor cyclical and high-beta stocks, as well as lower-quality laggards.
In a Tuesday note to clients, Kwon addressed and countered five major bearish arguments currently circulating in markets.
For the first concern — tight liquidity conditions — Kwon said that conditions are already showing signs of improvement. He explained that short-term funding rates (SOFR) have returned to normal levels, the Treasury General Account (TGA) is at its highest point since the pandemic period, and quantitative tightening “is ending.”
“Liquidity conditions should get better,” he wrote.
Regarding consumer weakness, layoffs, and market correction fears, Kwon said that while headlines about job cuts have increased, the reopening of the U.S. government and a possible December rate cut could support a “risk-on rally.”
For his third point, he reminded investors that 10% pullbacks are historically common, occurring almost once per year since 1950, and should not be viewed as unusual.
On AI-related capital spending, Kwon dismissed fears of overinvestment, emphasizing that hyperscalers’ spending is “a must to stay competitive,” which should extend the investment cycle and support AI infrastructure stocks. He added that power-related firms and small-to-mid-cap AI capex beneficiaries remain his preferred plays.
Finally, addressing valuation concerns, Kwon acknowledged that multiples appear elevated but argued that “valuation is only half the equation – the other half is EPS surprise.”
If corporate earnings grow by at least 10% annually between 2025 and 2027, Kwon projects that the S&P 500 could deliver an average total return of around 8% per year, ultimately reaching 9,500 by 2030.