Wells Fargo Cuts S&P 500 Target to 7,700 on Late-Cycle Risks

Wells Fargo has lowered its year-end price target for the S&P 500, citing limited catalysts for further gains and increasing risks as the market enters the later stages of its cycle. The bank trimmed its forecast despite raising its earnings-per-share estimates for future years.

Revised Outlook

In a research note dated September 14, the firm reduced its S&P 500 target to 7,700 from a previous 7,950. The revised target represents approximately 1% of potential upside from the index's last close of 7,619.98. The note stated that the market is entering the "late innings" of the cycle, a phase that typically supports lower valuation multiples.

The updated forecast places Wells Fargo's projection below those of several Wall Street peers that expect the index to top 8,000 by the end of 2026. The move follows a similar, though more cautious, revision from BofA Global Research, which recently raised its target to 7,400 while warning of seasonal weakness.

Shifting Sector Strategy

Coinciding with the target change, Wells Fargo adjusted its sector recommendations, downgrading the U.S. technology sector to "equal weight" from "overweight". In a corresponding move, the bank upgraded the healthcare sector to "overweight" from "equal weight".

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The note highlighted potential headwinds for technology stocks, including political risks associated with midterm elections and what it described as growing "political pushback against data centers." The downgrade also follows a recent selloff in the sector after leading AI firms called for a slowdown in development due to safety concerns.

Earnings and Market Context

Despite the more cautious index target, Wells Fargo increased its earnings-per-share (EPS) estimates for S&P 500 companies for the coming years.

• The 2027 EPS estimate was raised to $425 from $395.
• The 2028 EPS estimate was raised to $460 from $425.

The bank cautioned, however, that 2028 earnings could face downside risk if the current pace of spending on AI infrastructure decelerates. The market adjustment comes as the benchmark S&P 500 index has gained 11.3% year-to-date, supported by a strong second-quarter earnings season where 85.7% of reporting companies beat analyst estimates, according to LSEG data.