Wells Fargo expects a "rally in everything" by the end of the year. There are five reasons for this

Wells Fargo is forecasting a "rally of all things" by the end of the year, expecting risky assets to rise due to a combination of several market support factors, writes Investing.com.

The bank expects the S&P 500 Index to reach 7,100 points by the end of 2025 (it is now around 6,875 points), helped by seasonality, AI-related investments, policy incentives and consumer activity.

Wells Fargo analysts led by Osang Kwon explained that they bet on risky but potentially more profitable assets. They are talking about so-called junk assets - low-rated securities and stocks with high beta coefficients that react more strongly to market volatility, the publication explains. They are also interested in mid-capitalization companies investing in AI and investments designed for inflation growth and economic recovery.

1. laggards rebound in November-January: according to analysts, after October, when investors traditionally lock in losses for the sake of tax optimization, seasonal factors begin to work in their favor. Historically, the stocks that lagged the most from January through October have on average performed 3.9 percentage points higher than the S&P 500 Index, with this dynamic occurring about two-thirds of the time, analysts note.

2. AI capital expenditure: analysts predict that the largest cloud companies (aka hyperscalers) will aggressively ramp up investment in AI infrastructure through 2026, leveraging leverage.

"We are now in the fourth inning (a term from baseball, where there are only nine innings - rounds - OnInvest), and in the middle of the game (fourth through sixth innings), capital expenditure growth will be funded by borrowing," the analysts wrote. They added that cloud companies are currently only covering about 8 percent of their capital expenditures with debt, which is down significantly from previous investment cycles.

"Don't underestimate the AI capital investment cycle," Kwon and his team emphasized.

3. Possible boost to prices after the reciprocal duties ruling: On Nov. 5, the U.S. Supreme Court will hear lawsuits challenging reciprocal duties imposed under the International Emergency Economic Powers Act.

"If the law is overturned, the duties collected under it are subject to refund," the analysts said, estimating possible payments to companies of up to $160 billion. The bank expects that if the decision is not in favor of the U.S. administration, the market may start to experience a so-called reflation trade - a situation when investors start actively buying stocks and commodities in anticipation of accelerating economic growth and inflation.

4. Trump's Big Beautiful Law Tax Refund: Wells Fargo projects that the package of measures under this program could add between $800 and $850 in refunds or relief to taxpayers, giving the economy an additional boost of about 0.45 percentage points of GDP growth.

"We expect increased interest in reflation-linked assets on the back of this consumer stimulus," the analysts said.

5. Government reopening: If the current federal agency shutdown ends in early November, it will be the longest in U.S. history. According to Wells Fargo, once the government reopens, the S&P 500 index would rise an average of 2.6% over the next month. Analysts add that even after the reopening of government agencies, the flow of statistics may remain limited, and in the stock market in such conditions "the absence of news is usually perceived as good news".

This article was AI-translated and verified by a human editor