Wells Fargo announced an upward revision of its year-end forecast for the S&P 500 index to 5,535, the highest prediction among Wall Street firms.
This adjustment, revealed on Monday, reflects a growing enthusiasm for artificial intelligence (AI) innovations and the prospect of reduced borrowing expenses.
With a 9% increase since the beginning of the year, the S&P 500’s performance is largely attributed to the anticipation of interest rate reductions and the excitement surrounding the AI surge.
The investment firm highlighted the impact of AI, the enduring appeal of the bull market, and the dominance of certain stocks in shifting investor focus from traditional valuation metrics to those emphasizing long-term growth and discounting.
Specifically, the “Magnificent Seven” tech giants — Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla — have been at the forefront of benefiting from the AI wave.
Despite a recent broad rally in U.S. stocks, fueled by the Federal Reserve’s consistent interest rate cut forecasts and an AI-driven market enthusiasm, Wells Fargo warns of potential volatility in the first half of 2024.
However, it also suggests a possible “melt-up” in the latter half of the year, influenced by political developments favorable to mergers and acquisitions and a multi-year cycle of easing that encourages risk-taking.
“The bull market, AI’s secular growth story, and index concentration have shifted investors’ attention away from traditional valuation measures and toward longer-term growth and discounting metrics,” Wells Fargo noted.
Moreover, Wells Fargo adjusted its S&P 500 earnings per share (EPS) projection for the year upward to $242 from $235, indicating a positive outlook for equity markets despite expected short-term volatility.
“We believe equities have some upside from here, but still anticipate a volatility spike in first half of 2024,” the firm stated, adding, “A ‘melt-up’ in the second-half of 2024 appears increasingly likely.”
This revised target suggests a 6.4% increase from the index’s last closing figure of 5,204.34, contrasting with Wells Fargo’s earlier prediction of 4,625 by year’s end. Competing forecasts from HSBC and BofA Global Research had pegged the index at 5,400, with Oppenheimer slightly more optimistic at 5,500, underlining the bullish sentiment prevailing on Wall Street.