Wells Fargo Lowers S&P 500 Target to 7,700 and Downgrades Tech Stocks

TLDR

• Wells Fargo lowered its S&P 500 year-end target from 7,950 to 7,700, implying just 1% upside from current levels
• The bank says the market is in the late stage of its growth cycle, which typically leads to lower valuations
• Wells Fargo downgraded tech stocks to equal-weight, citing AI spending slowdown risks and political pressure on data centers
• Healthcare was upgraded to overweight as a more defensive play in a late-cycle market
• Bank of America also updated its target, raising it to 7,400 but warning of a weak seasonal period ahead

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Wells Fargo has cut its S&P 500 year-end price target from 7,950 to 7,700, saying the stock market rally is losing steam. The new target leaves room for only about 1% more gains before the end of 2026.

The bank’s strategists, led by Ohsung Kwon, made the call on September 14. The S&P 500 closed Monday at around 7,620, up 11% for the year.

Late-Cycle Pressure on Valuations

Wells Fargo says the market is entering the late innings of its growth cycle. In this phase, investors typically pay less for stocks relative to earnings, a process known as multiple compression.

The bank still raised its earnings forecasts. It now expects S&P 500 companies to earn $425 per share in 2027 and $460 in 2028.

But analysts flagged a concern. They estimate that 2027 earnings projections are already 42% above the historical trend line for this point in the economic cycle. That gap is the highest since the 1950s.

Wells Fargo also warned that if big tech companies slow down spending on AI infrastructure, it could drag on 2028 earnings. Recent S&P 500 earnings grew 50% year-over-year last quarter, a pace the bank does not expect to continue.

Tech Downgraded, Healthcare Upgraded

Wells Fargo cut its rating on tech stocks from overweight to equal-weight. The move came after a broad tech selloff on Monday, triggered by calls from AI industry leaders for a voluntary pause on some forms of tech development.

The bank cited midterm elections as another risk for tech. Political opposition to large data centers has been growing, and a Democratic sweep in November could create further headwinds for the sector. Tech stocks have gained 28% this year.

Within tech, Wells Fargo said it prefers software companies over chipmakers.

On the other side, the bank upgraded healthcare stocks from equal-weight to overweight. A Democratic election outcome could restore enhanced Affordable Care Act subsidies, which would benefit the sector. Healthcare has risen 9% this year.

Bank of America moved in the opposite direction on its overall target, raising its year-end S&P 500 forecast from 7,100 to 7,400. But BofA also issued a caution, saying markets are in a seasonally weak period and investors should look toward more stable sectors.

Wells Fargo’s own stock rose 3% following the release of the report. The bank currently holds a Moderate Buy consensus rating on TipRanks, with an average 12-month price target of $101.05.