Wells Fargo’s Harvey explains why his 2025 S&P 500 PT of 7007 'is not a stretch'

Investing.com -- Wells Fargo (NYSE:WFC ) analyst Christopher P. Harvey has set a 2025 S&P 500 price target (PT) of 7,007, asserting that this bold figure “is not a stretch.”

In a Friday note, Harvey identifies inflation, valuations, corporate guidance, geopolitical risks, and tech litigation as the key drivers behind this projection.

On inflation, he highlights how core CPI has fallen from a peak of 6.6% in 2022 to 3.3% by mid-2024 but remains stubbornly above the Federal Reserve's 2% target. This, in turn, is “ hurting consumers and putting the Fed's easing cycle in doubt,” Harvey said.

However, accelerating AI adoption, coupled with Trump’s energy policies and focused on unit volume growth over pricing is likely to “keep a lid on inflation despite tariff fears,” the analyst noted.

In terms of valuations, Harvey acknowledges that the S&P 500 is trading at over 22x forward earnings, a level seen rarely before. Yet, he emphasizes that the index's composition has fundamentally shifted.

"At the end of 1999, the S&P 500 was 36% Info Tech and Comm Services. Today, it is 42%—not including Amazon (NASDAQ:AMZN ) (4%) and Tesla (NASDAQ:TSLA ) (2%). This shift to higher-growth sectors clearly merits higher multiples," he explains.

Harvey also addresses the likelihood of soft initial 2025 corporate guidance weighing on the market. Recent examples, such as Adobe (NASDAQ:ADBE )'s conservative guidance leading to stock sell-offs, illustrate this risk.

Still, he views such moments as opportunities. "We've seen this movie before," he states, referring to the potential for earnings beats and rising stock prices after early caution from management teams.

Meanwhile, geopolitical uncertainties are still a risk, including growing tensions in Asia and ongoing conflicts.

“Chinese aggression toward Taiwan remains a risk, European politics are in flux, and our intel agencies warn of domestic terrorism. Drone technology magnifies the risk of a market-moving attack,” the analyst said.

However, Harvey stresses that these concerns also existed a year ago, when the S&P 500 was at 4,700.

“Trump's track record, campaign promises, and cabinet nominations suggest to us that (on balance) a general deescalation of tensions is more likely,” he said.

Lastly, while potential litigation involving Big Tech could create headwinds, Harvey sees these risks as underappreciated. Trump’s new FTC chair appointee, Andrew Ferguson, is seen as a pro-markets choice but is also an “advocate of free speech, which could put the FTC at odds with some Tech players,” according to Harvey.

Source: Investing.com