Wall Street spent most of 2025 convinced that Federal Reserve rate cuts were the unlock for the next leg of the stock market rally. That thesis did not play out the way most strategists expected.
On June 30, Wells Fargo put a number on what the market has actually been running on instead.
Wells Fargo Chief Equity Strategist Ohsung Kwon published a call on June 30 that tells a specific story about what moves equity markets higher. The details behind the bank’s revision are more instructive than the headline target.
Why Wells Fargo’s S&P 500 target raise stands out from the crowd
Banks raise their S&P 500 targets two ways. They can assume investors will pay a higher multiple for the same earnings, or they can raise their earnings estimates and let the math produce a higher target.
Wells Fargo did the second, as TheStreet reported. The firm lifted its year-end target to 7,950 from 7,007, a jump of nearly 14%, but the earnings multiple barely moved, going from 23.2x to 23.4x. The whole move came from higher profit estimates.
Wells Fargo raised its 2026 S&P 500 earnings-per-share estimate to $340 from $315 and bumped its 2027 forecast to $390 from $365, GuruFocus noted. Part of the foundation for that confidence is Q1 2026 itself, where S&P 500 companies posted 28% year-over-year earnings growth, the strongest pace since 2021.
“The path of direction for the equity market is still higher,” Kwon said.
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The U.S.-Iran interim deal also factored into the bank’s revised outlook. With geopolitical pressure easing, one of the bigger risk variables in the second-half forecast has become less threatening.
The equity selloff over recent weeks has also brought investor positioning back toward neutral, which Wells Fargo sees as useful room for stocks to reclaim.
What Wells Fargo is saying about AI and which sectors it favors
Wells Fargo is constructive on cyclical stocks, semiconductors, and infrastructure names tied to the AI buildout through the rest of 2026, TheStreet reported.
The combination matters because it goes beyond the AI hardware trade. Wells Fargo sees AI contributing to real earnings across a broader range of industries, pulling in cyclicals that have lagged the mega-cap technology rally and could catch up if macro conditions continue stabilizing.
The cyclical addition to the list is notable. Wells Fargo sees a potential catch-up trade in names that sat out much of the recent rally and stand to benefit from easing macro headwinds. The bank is not positioning for just the narrow AI leadership group at the top of the index.
On risk, Wells Fargo named inflation as the clearest danger to the earnings story. The bank said equities could still work as a hedge if the Federal Reserve allows the economy to run warm, but acknowledged that a more aggressive Fed stance on rate hikes would complicate the profit growth picture significantly.
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What Wells Fargo’s Investment Institute said about 2027
A day after the S&P 500 target revision, Scott Wren, Senior Global Equity Strategist at Wells Fargo Investment Institute, published a separate note on July 1 extending the same argument into 2027. Wren projected nearly 25% earnings growth for the S&P 500 in 2026 and roughly 13% growth in 2027, Seeking Alpha reported.
The two-year projection reflects a view that AI-driven productivity gains and infrastructure spending will keep feeding corporate earnings well beyond this year.
Together, the two Wells Fargo notes describe a market where rate policy has become secondary. The strategists who built their 2025 thesis around waiting for the Fed to move may have been focused on the wrong input. Wells Fargo’s case is built on profits, and the argument is that profits have enough momentum to carry equities higher with or without help from Washington.
What the Wells Fargo call means for the rest of 2026
Wells Fargo’s target of 7,950 sits alongside Goldman Sachs at 8,000 and Citi at 8,100. The banks arriving at similar numbers through similar logic, earnings-driven, AI-supported, independent of Fed cuts, is the more meaningful signal.
It suggests the consensus view of where the market goes from here is rooted in fundamentals rather than policy expectations.
The test for that consensus arrives in mid-July, when Q2 earnings season gets underway with major bank reports. Wells Fargo’s 2026 EPS estimate of $340 needs companies to keep delivering at the pace set in Q1.
Strong results would validate the bank’s revised framework, while a broad earnings disappointment would put the 7,950 target under pressure before the year is out.
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