Wall Street is bracing for what could be a powerful year-end rally, with Wells Fargo analysts predicting that risk assets across the board will rise in tandem. The bank’s team, led by Ohsung Kwon, expects the S&P 500 to hit 7,100 points by year-end, citing a mix of seasonal tailwinds, AI-driven investment momentum, policy support, and consumer stimulus.
Five Reasons Behind the Bullish Call
1. Lagging Stocks Poised for a Bounce
Wells Fargo points to market seasonality as a key driver. Once tax refunds wrap up in October, history suggests underperforming stocks tend to rebound. Data shows that the worst-performing stocks from January to October outperformed the S&P 500 by an average of 3.9 percentage points between November and January, with a 66% success rate. In other words, the market’s laggards could finally get their moment in the sun.
2. AI Capital Spending Still in Early Innings
The AI investment cycle remains a central theme. Analysts expect hyperscalers to accelerate capital spending through 2026, with debt financing playing a bigger role. Currently, only about 8% of cloud providers’ capex is debt-financed, far lower than in past cycles. Wells Fargo argues we’re only in the "fourth inning" of this AI boom, and the middle innings could bring another wave of surprises.
3. IEEPA Tariff Lawsuit Could Spark Reflation
On November 5, the U.S. Supreme Court will hear a challenge to tariffs imposed under the International Emergency Economic Powers Act (IEEPA). If overturned, the government may be forced to refund as much as $160 billion in tariffs. Wells Fargo expects such a ruling could trigger a "reflation/fiscal uncertainty trade", injecting volatility but also lifting risk assets.
4. Tax Refund Stimulus from the Big and Beautiful Act
The so-called Big and Beautiful Act could deliver a hefty consumer boost, with refunds estimated at $800–$850 per taxpayer. That’s equivalent to about 45 basis points of U.S. GDP, according to Wells Fargo. Analysts believe this stimulus could fuel consumer spending and spark another reflation trade heading into year-end.
5. Government Reopening Effect
If the current government shutdown ends in early November, it will mark the longest in U.S. history. Historically, the S&P 500 has risen an average of 2.6% in the month following a reopening. Even if data releases are delayed, Wells Fargo notes that "no bad news is good news" often applies in these scenarios.
The Bottom Line
Between seasonal rebounds, AI-driven capex, potential tariff refunds, consumer stimulus, and a government reopening, Wells Fargo sees multiple catalysts converging into a broad-based rally. While risks remain—particularly around fiscal policy and trade disputes—the bank believes the setup favors risk assets into year-end.
For investors, the message is clear: don’t underestimate the power of seasonality and stimulus when combined with the ongoing AI boom.