'Buy the election' says Wells Fargo and raises S&P 500 price target

Investing.com -- Wells Fargo (NYSE:WFC ) analysts urged investors to “buy the election,” and lifted their 2024 price target for the S&P 500 index to 5,830 from the previous 5,535.

The new target price is based on an estimated 2025 earnings per share (EPS) of $270, a figure that remains unchanged. However, the price-to-earnings (P/E) multiple has been increased to 21.6 times from 20.5 times.

“The multiple expansion assumes our Econ Team's year-end 10yr UST forecast of 3.8% and the current investment-grade (IG) credit spread of 83bps,” analysts Christopher P. Harvey and Gary S. Liebowitz noted.

They explain that their previous "sell-the-news" stance at the October high has now become a consensus view, and the S&P 500 has since traded down to its 50-day moving average on Monday (NASDAQ:MNDY ), which was a predicted outcome.

Wells Fargo also describes the current "pain trade" as a rotation where portfolios that have been outperforming due to Growth and Price Momentum factors may face challenges with a broadening market and a move down in capitalization, similar to trends observed in July.

Now, analysts believe investors should take a more proactive approach. They highlight that 12-month returns after the last six presidential elections and easing cycles “have seen median and average returns for the major indices in the double digits.”

“Also, in our view we have under-appreciated economic growth, a solid earnings season, tight credit spreads, and positive momentum,” they added.

Analysts also suggest that investors consider moving down in market capitalization as the market broadens.

Factors such as economic growth, a Federal Reserve easing cycle, oversold technicals, an improving regulatory environment, and a solid earnings season are seen as beneficial for smaller caps and broader market participation.

“Our best longer-term risk/reward is midcap growth,” analysts highlight.

Sector-wise, Wells Fargo is overweight on banks, with expectations that regulatory changes under a new administration will support group multiples and earnings.

While the firm foresees the Communication Services sector, a favorite over the last two years, trading with or slightly lagging behind the market in the near term, it maintains a positive outlook for the sector in the longer term.

Source: Investing.com