The New York stock market has been riding a wave of optimism since Donald Trump’s election victory, fueled by tax cuts and deregulation promises. Even longtime market pessimists are now shifting to a more positive view.
Wells Fargo, one of the largest banks on the West Coast, also joins the optimistic view. On November 20, Wells Fargo predicted that the S&P 500 index would reach 6,600 by the end of next year, representing an 11% increase from the previous day’s closing price of 5,946.98.
Wells Fargo isn’t the only firm that has a bullish stance.
David Kostin of Goldman Sachs Group, Inc. set a target of 6,500 for the S&P 500 by the end of next year. On Monday, even Mike Wilson, Morgan Stanley’s CIO and Wall Street’s notorious bear, projected 6,500 for the S&P 500 by the end of next year. Brian Belski from BMO Capital is expecting 6,700, while UBS forecasts 6,400.
Despite already surging over 20% this year, the outlook that the S&P 500 still has the potential to grow is mainly due to Trump’s election and Republican victories in Congress.
CNBC reported that Darrell Cronk of the Wells Fargo Investment Institute indicated in a note that due to stronger U.S. economic growth and decreased costs from deregulation, earnings per share for S&P 500 companies are expected to rise to $275, an increase from the previous forecast of $270. Consequently, he noted that the target for the S&P 500 has been raised from 6,300 to 6,600.
Cronk emphasized that deregulation would further boost profit growth, with the possibility of corporate tax cuts adding to the positive outlook. While the exact timing and extent of these measures remain uncertain, he stressed their undoubtedly positive impact on the stock market.
Initially skeptical, Cronk set a target of 4,700 for the S&P 500 this year, raising it to 5,400. However, the index has consistently exceeded expectations, breaching the 6,000 mark for the first time on November 11.
Wilson, another former bear, has also adjusted his outlook. At the start of the year, he predicted the S&P 500 would close at 4,500, later revising his target to 5,400 in May. On Monday, Wilson projected that the average earnings per share for S&P 500 companies would reach $303 by 2026, with a price-to-earnings ratio of 21.5. This led him to set a year-end target of 6,500 for the index.
Wilson expects continued corporate earnings growth next year, driven by Federal Reserve rate cuts. Next year’s projected EPS increase is 13%, and in 2026, it is projected to be 12%.
Nevertheless, some caution remains.
Market strategist David Rosenberg, founder of Rosenberg Research, argued that the current rally is more sentiment-driven than earnings-based, warning that the market may be in a bubble. He suggested that the S&P 500 would be roughly 1,000 points lower if earnings were truly the driving force.
Rosenberg advises investors to reduce risk exposure until the policies of a second Trump administration become clearer, urging, “It’s prudent to wait for the dust to settle.”
