Wells Fargo Bullish on S&P 500's Future

Christopher Harvey, head of equity strategy at Wells Fargo Securities LLC, has reaffirmed his bullish outlook for the S&P 500 (SPX), indicating the potential for double-digit growth in the second half of the year. This prediction is based on the strong performance and resilience demonstrated by mega-cap American technology companies.

Harvey, one of Wall Street’s most steadfast bulls, remains committed to his year-end S&P 500 target of 7,007, which was set last December. This target represents an approximate 11% increase from the recent closing price of the index. He believes that tech companies will continue to drive the market, despite evolving trade policies. Tech companies have already propelled the index up by 27% since its April low.

Dominance of Mega-Cap Tech Firms

"What we’re seeing is a winner-take-all situation," Harvey said. "Mega-cap tech companies have higher profit margins and are gaining more market share. There’s a real long-term trend in AI that will continue."

This reflects a continuation of the current trend, where tech companies have been a primary driver of the bull market over the past several months, despite global uncertainty. The “Magnificent Seven” stocks have surged 42% since April 9, when trade tensions eased.

While skeptics worry about overvalued U.S. equities, Harvey argues that the S&P 500's gains are concentrated in a few fast-growing tech companies, shielding it from broader economic trends. Just five companies – Nvidia, Microsoft, Apple, Amazon, and Meta Platforms – have contributed over a quarter of the index’s gains.

Evolution of the S&P 500

"The S&P 500 today is different than it was 25 years ago. It’s stronger now, with much better fundamentals," he said. He adds that the index’s leading companies, in particular, are “more growth-oriented, more tech-heavy,” as well as having greater productivity and more professional management.

The strength of these companies will be evident in the coming weeks, as major tech companies begin reporting quarterly earnings. Two of the “Magnificent Seven” – Tesla and Google – are scheduled to report earnings this week.

The S&P 500's earnings growth is primarily coming from beneficiaries of AI advancement. Bloomberg Intelligence forecasts that the “Magnificent Seven” will see combined profits grow 14% in the second quarter, while the earnings of other S&P 500 constituents are expected to be relatively flat.

Harvey was among a small number of Wall Street forecasters who maintained their correct outlook during the market volatility in April. He predicted a significant stock market rise, while many of his peers quickly lowered their outlooks and then reversed course after the market rebounded to new highs. His persistence in his forecast stemmed from his confidence in the S&P 500’s resilience, and his understanding of the trade.

Harvey predicts that favorable macroeconomic conditions and accommodative monetary policy in 2025 will lead the U.S. stock market to continue rising after rising for two consecutive years by 20% in 2023 and 2024.

The S&P 500 has recorded seven new highs since late June, reaching another record on Monday. Despite uncertainty about tariffs, economic growth, inflation and the Federal Reserve’s rate cut plans, the stock market’s gains remain rapid.

Harvey acknowledges that there are real risks in the market, such as attacks on Fed Chair Powell and the impact of interest rates and inflation after the tariff truce ends. But he says the positives in the market have outweighed these concerns so far.

"We’re starting to see more M&A activity. We do think the Fed is going to cut rates, fundamentals are good, and the consumer is also in good shape," Harvey notes.