Wells Fargo & Co.’s sentiment indicator has flashed a 'buy' signal for the first time since June 2025, suggesting US stocks have reached attractive levels after a recent decline. The drop was fueled by concerns over artificial intelligence, elevated oil prices, and midterm elections. Historically, this contrarian indicator has preceded a 6.5% average rise in the S&P 500 over the next three months, 89% of the time, according to analysts led by Chief Equity Strategist Ohsung Kwon.
While semiconductor shares are expected to remain range-bound, the bank predicts hyperscalers and infrastructure software names will lead the market higher. Kwon noted that sentiment has become overly bearish regarding AI financing and geopolitical tensions. Although the S&P 500 is only 1.6% off its record high, the Philadelphia Semiconductor Index has fallen 14% since October 6 due to renewed chip demand concerns.
All eyes are on mega-cap AI companies reporting earnings in the coming weeks. Kwon downgraded the tech sector to equal-weight in September due to growing pushback against data centers ahead of midterm elections. He argues that capital discipline, not increased spending, will be the next bull case, with hyperscalers emerging as market leaders. The long-term outlook for AI infrastructure remains strong, with robust earnings and tight supply-demand expected by 2027.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing