The Wells Fargo indicator has issued a buy signal for the first time in nearly 1.5 years
For the first time since June 2025, the Wells Fargo indicator has issued a buy signal / Photo: Sheila Fitzgerald / Shutterstock.com
The sentiment indicator calculated by Wells Fargo has issued a buy signal for the first time since June 2025, according to Bloomberg. This suggests that U.S. stocks have fallen to attractive levels following a decline triggered by concerns over artificial intelligence and high oil prices.
Historically, following such signals, the S&P 500 index has risen in 89% of cases over the next three months, gaining an average of 6.5%, according to Wells Fargo analysts led by chief equity strategist Osong Kwon. In their view, semiconductor stocks are likely to continue trading within a narrow range, while the market’s growth drivers will be the largest cloud providers—hyperscalers—and infrastructure software developers.
“Sentiment surrounding AI funding, the midterm elections, and Iran may have become overly negative,” Kwon believes. The Wells Fargo indicator works in reverse: extreme pessimism signals a buying opportunity. At the same time, analysts warned that the slowdown in U.S. corporate earnings growth and the decline in liquidity require investors to exercise caution.
In September, Kwon downgraded his recommendation on the technology sector from “bullish” to “neutral.” In previous quarters, rising capital expenditures on AI had driven up chipmakers’ stock prices. However, according to Wells Fargo, this is unlikely to support stock prices going forward. The reason is that rising spending means increased debt, which will make it harder for neo-clouds—cloud providers focused on the AI market—to raise capital.
“We believe that discipline in capital expenditures will be a driver of growth, and that hyperscalers will be the new leaders,” Kwon wrote. “The reasons for optimism regarding AI infrastructure are tied to 2027: profits will be high, and supply will continue to struggle to keep up with demand.”
Although the S&P 500 is trading just 1.6% below its all-time high, AI-related market segments have been hit much harder. The Philadelphia Semiconductor Index has lost 14% since October 6 amid renewed doubts about demand for chips. Investors’ attention is now focused on the largest AI companies, which will report earnings this week and next.
This article was AI-translated and verified by a human editor
