Wells Fargo lowered its year-end target for the S\u0026P 500 from 7,950 to 7,700, saying the market rally is losing momentum. Based on the index’s Monday close of about 7,620, the revised target implies roughly 1% upside through the end of 2026.

The call was made on September 14 by Wells Fargo strategists led by Ohsung Kwon. The S\u0026P 500 was up 11% for the year at Monday’s close.

Late-Cycle Pressure on Valuations

Wells Fargo said the market is moving into the late stage of its growth cycle. During this phase, investors typically assign lower valuations to stocks relative to their earnings, a process known as multiple compression. The bank’s outlook therefore combines higher earnings expectations with a more cautious view of the valuation investors may assign to those earnings.

The bank nevertheless raised its earnings forecasts for the index. It now expects S\u0026P 500 companies to generate earnings of $425 per share in 2027 and $460 per share in 2028.

Analysts also identified a significant gap between current forecasts and historical patterns. They estimate that projections for 2027 earnings are already 42% above the historical trend line for this point in the economic cycle, the largest gap since the 1950s.

Wells Fargo warned that a slowdown in spending on artificial intelligence infrastructure by major technology companies could weigh on 2028 earnings. S\u0026P 500 earnings increased 50% year over year in the most recent quarter, but the bank does not expect that pace to continue.

Tech Downgraded and Healthcare Upgraded

Wells Fargo downgraded technology stocks from overweight to equal-weight. The decision followed a broad technology selloff on Monday after AI industry leaders called for a voluntary pause on some forms of technology development.

The bank also cited the midterm elections as a potential risk for the technology sector. Political opposition to large data centers has been increasing, and a Democratic sweep in November could create additional headwinds. Technology stocks have gained 28% this year.

Within the technology sector, Wells Fargo said it prefers software companies to chipmakers.

Healthcare stocks received the opposite treatment, with Wells Fargo upgrading the sector from equal-weight to overweight. The bank said a Democratic election outcome could restore enhanced Affordable Care Act subsidies, which would benefit healthcare companies. The sector has risen 9% this year.

Bank of America took a different view on the overall index target, raising its year-end S\u0026P 500 forecast from 7,100 to 7,400. However, BofA also warned that markets are in a seasonally weak period and said investors should consider more stable sectors.

Wells Fargo’s stock rose 3% after the report was released. The bank has a Moderate Buy consensus rating on TipRanks, where the average 12-month price target is $101.05.

Source: CoinCentral