Despite the year-end approaching, some major Wall Street banks have raised their target prices for US stocks this year, believing that US stocks are likely to accelerate their growth in the next month or so.
On Tuesday, Eastern Time, Wells Fargo Analyst Ohsung Kwon raised his year-end 2025 S&P 500 target from 6,600-6,800 points to 7,100 points, citing potential bottoming-out buying signals and improved liquidity conditions.
US stocks are close to triggering a buy signal
Wells Fargo analyst Ohsung Kwon said its U.S. stock “sentiment indicator” fell to -0.99 last week, approaching the historically significant buy signal value of -1.00.
He pointed out that in the history of US stocks, whenever a similar buy signal appears, the S&P 500 index usually rises by an average of 7.5% in the following three months, and there are positive returns nine out of ten times.
Moreover, during such periods, cyclical stocks, high-beta stocks, and lower-quality lagging stocks typically perform better.
Refuting five bearish arguments
Analysts also refuted five bearish views currently circulating in the US stock market.
First, there's a bearish view that's been circulating in the market recently: that liquidity in the US stock market remains tight. However, the analyst says that the situation is improving.
Ohsung Kwon wrote: “The short-term funding rate (SOFR) has “basically returned to normal”, the size of the Treasury’s total account (TGA) has reached its highest level since the COVID-19 pandemic, and quantitative tightening (QT) is “coming to an end”.
He added, "Liquidity conditions should improve."
Secondly, given the recent weak US consumer data and the continuous reports of corporate layoffs, concerns have arisen in the market about the fundamentals of the US economy.
In response, the analyst believes that although the number of times US companies have mentioned layoffs has increased significantly this earnings season, the possibility of the US government reopening soon and the Federal Reserve potentially cutting interest rates again in December could support a "rebound in risk appetite."
Furthermore, despite the pullback in the US stock market last week, he pointed out that a 10% correction is normal, and this has happened on average nearly once a year since 1950.
In response to artificial intelligence Regarding concerns about related capital expenditures, Ohsung Kwon pointed out that the spending of mega-corporations is "essential to maintaining competitiveness," which may prolong the investment cycle.
The analyst wrote that this would benefit " artificial intelligence infrastructure stocks." He also stated that his preferred investment areas include the power sector. And small- to mid-cap companies that benefit from AI capital expenditures.
Finally, regarding concerns about US stock valuations, Ohsung Kwon acknowledged that US stock price-to-earnings ratios do appear high, but stated that "valuation is only half the problem—the other half is better-than-expected earnings per share." He believes that if US companies' earnings grow by at least 10% annually from 2025 to 2027, he estimates the S&P 500's total annual return over the next five years could reach approximately 8%—reaching 9,500 points by 2030.
(Article source: CLS)
