Wells Fargo has lowered its year-end 2026 S&P 500 goal to 7,700 from 7,950, citing issues about equity valuations, investor positioning and liquidity situations. The firm now forecasts potential near-term draw back of 5% to 10%.
In a analysis observe, analysts led by Ohsung Kwon raised their earnings-per-share forecasts to $425 for 2027 and $460 for 2028. However, they believe the market is “entering late innings of the cycle,” creating situations in which valuation multiples could contract despite continued earnings growth.
As half of its revised outlook, Wells Fargo downgraded technology to equal-weight from chubby and upgraded health care to chubby from equal-weight. The firm also recognized appreciation in the South Korean won as a potential impediment for reminiscence semiconductor shares.
The analysts estimated that buyers presently allocate 72% of their portfolios to equities, the highest proportion since 1969.
With the US 10-year Treasury yield approaching 5%, Wells Fargo calculated that an equity allocation of roughly 60% would be constant with its valuation framework.
The ensuing 12-percentage-point distinction represents “the widest negative gap since 1969, wider than the Tech Bubble,” according to the firm.
Wells Fargo said this allocation hole has traditionally been correlated with subsequent five-year equity extra returns. Its evaluation factors to restricted extra returns under an assumed earnings-per-share compound annual growth charge of 7%.
The analysts also described company America as “over-earning,” citing elevated earnings relative to historic trends.
They forecast that annualised 10-year EPS growth will attain 14% by 2027, a charge exceeded only during the post-World War II bull market of the Fifties.
The firm estimates that 2027 earnings will be 42% above their cyclical stage, the highest such studying since the Fifties, and expects equity valuation multiples to contract during that yr.
Although Wells Fargo sees restricted risk to its 2027 earnings projections, it recognized 2028 forecasts as more susceptible to a slowdown in artificial intelligence capital expenditure.
Its 2028 EPS estimate of $460 is below the consensus forecast of $487.
Liquidity situations characterize another factor of the firm’s outlook. Wells Fargo said its Liquidity Indicator has fallen to its lowest stage of the yr and is expected to decline further through November.
The analysts famous that defensive shares have traditionally outperformed during intervals of weakening liquidity and maintained their choice for high quality shares over higher-beta equities.