NYSE
- Stocks are headed for fresh records as they embark on a three-month “sugar high,” Wells Fargo says.
- The bank sees the market getting a boost from catalysts like AI and Trump’s One Big Beautiful Bill.
- Economic growth will eventually slow as inflation rises in the second half, the bank said.
Stocks are headed for a euphoric run-up heading into midsummer, according to analysts on Wells Fargo’s equity strategy desk.
In a note to clients on Monday, the bank said it expected the S&P 500 to break fresh records over the next several months, driven by a handful of catalysts that create a “sugar high” in markets.
In their bull-case scenario, analysts see the benchmark index hitting a record of 7,300 by July, implying a 5% jump from current levels.
The S&P 500 has struggled to move higher for much of this year, with the bull rally largely being derailed by the war with Iran. However, as of Tuesday’s close, the index had erased the wartime losses, turning positive since the conflict began, and is up nearly 2% year to date.
“3 months of sugar high,” a team of analysts led by Ohsung Kwon wrote of their outlook for equities. “We remain structural bulls, and our ‘tactically cautious’ call didn’t play out.”
The bank pointed to a cocktail of bullish factors that could help growth exceed expectations in the second quarter and boost stocks:
Trump’s One Big Beautiful Bill. The bill, which extends Trump’s 2017 tax cuts and includes new fiscal stimulus, is expected to raise real GDP growth by an average of 0.2 percentage points each year from 2025 to 2027, according to an estimate from Yale’s Budget Lab.
“OBBB Tax benefits will exceed the higher cost of living for the next six months,” the analysts estimated.
Growth in manufacturing and services. The bank said it was “bullish” on the next cycle for the Purchasing Manager Index, the economic indicator that gauges strength in the manufacturing and services sectors.
Activity could get a boost due to tariffs being lowered from the recent Supreme Court ruling, as well as the recent shock to supply chains, analysts said.
The AI boom. The AI cycle could mature, causing the bull market to be more “monetization-led,” analysts said.
“Our analysts expect Hyperscalers’ FCF to inflect higher following a 67% cut in 2026 FCF estimates,” the bank wrote of tech firms’ free cash flow. “They expect revenues to accelerate on new capacity,” the bank added.
The World Cup. Economic activity could also rev up heading into the World Cup soccer tournament, which kicks off in June and is expected to draw tourism and lift consumer spending.
The analysts added that they see the sugar high fading in the second half of this year.
“We expect the market to overshoot until growth starts to slow and inflation surprises in 2H,” they added.
Investors have been preoccupied with higher oil prices, which threaten to raise inflation while curtailing economic growth. Despite the risks, the outlook for equities has largely held up on Wall Street, with Morgan Stanley and Goldman Sachs eyeing continued upside.
