Wells Fargo Raises S&P 500 Target to 7,100 Amid Improving Market Liquidity
Wells Fargo has lifted its year-end 2025 forecast for the S&P 500 to 7,100, pointing to improving liquidity and a potential contrarian buy signal. Analyst Ohsung Kwon explained that the firm’s Sentiment Indicator recently dropped to -0.99, nearing the -1.00 threshold that has historically marked strong buying opportunities.
According to Kwon, similar signals in the past have produced an average 7.5% gain in the S&P 500 within three months, with positive returns in nine out of ten cases. These periods typically benefit cyclical and high-beta stocks, along with lower-quality laggards that tend to outperform during liquidity-driven rallies.
In a client note, Kwon addressed and debunked five major bear cases currently circulating on Wall Street. First, he argued that liquidity conditions are now easing, as short-term funding rates (SOFR) have normalized, the Treasury General Account (TGA) has reached its highest level since the pandemic, and quantitative tightening (QT) is nearing an end. “Liquidity conditions should continue to improve,” he added.
Second, Kwon dismissed worries about consumer weakness, layoffs, and potential market corrections. He noted that while layoffs are increasing, factors like a possible government reopening and a December rate cut could trigger a renewed risk-on rally.
Third, he reminded investors that 10% market pullbacks are historically normal, occurring almost once per year since 1950.
Fourth, Kwon addressed concerns about AI-related capital expenditures, emphasizing that hyperscaler investment is essential to stay competitive. This prolonged AI infrastructure cycle, he said, will benefit power and SMID-cap AI capex stocks, which remain among Wells Fargo’s top picks.
Lastly, on valuation concerns, Kwon acknowledged that multiples are elevated but argued that “valuation is only half the equation—the other half is earnings surprises.” If corporate earnings grow at least 10% per year between 2025 and 2027, Wells Fargo estimates the S&P 500 could generate an 8% annual total return, potentially reaching 9,500 by 2030.
