Wells Fargo Upgrades S&P 500 Targets

Wells Fargo (NYSE: WFC) analysts have urged investors to "buy the election" and raised the 2024 price target for the S&P 500 index to 5,830, up from 5,535.

Price Target Rationale

The new target price is based on an estimated 2025 earnings per share (EPS) of $270, which remains unchanged. However, the price-to-earnings (P/E) multiple has increased to 21.6 times from 20.5 times. According to analysts Christopher P. Harvey and Gary S. Liebowitz, the multiple expansion assumes the Econ Team's year-end 10-year UST forecast of 3.8% and a current investment-grade (IG) credit spread of 83bps.

Market Observations

The previous "sell-the-news" stance at the October high has shifted to a consensus view, with the S&P 500 trading down to its 50-day moving average, a predicted outcome. Wells Fargo characterizes the current "pain trade" as a rotation in which outperforming portfolios due to Growth and Price Momentum factors may face challenges amid a broadening market and capitalization shifts similar to trends observed in July.

Proactive Investment Approach

Analysts recommend a more proactive investment approach, noting that the 12-month returns following the last six presidential elections and easing cycles have shown median and average returns for major indices in the double digits. They believe economic growth, a solid earnings season, tight credit spreads, and positive momentum have been underappreciated.

Market Capitalization Strategy

Investors are advised to consider moving down in market capitalization as the market broadens. Factors benefitting smaller caps and broader market participation include economic growth, a Federal Reserve easing cycle, oversold technicals, and an improving regulatory environment. Wells Fargo's analysts highlight midcap growth as possessing the best longer-term risk/reward profile.

Sector Expectations

Sector-wise, Wells Fargo is overweight on banks, expecting regulatory changes under a new administration to support group multiples and earnings. While they see the Communication Services sector, previously a favorite, trading with or slightly lagging behind the market in the near term, the firm maintains a positive long-term outlook for the sector.