By Wells Fargo’s chief equity strategist Ohsung Kwon lowered his year-end target for the S&P 500 Index, citing mounting risks in the technology sector.
Kwon is one of the few strategists on Wall Street to trim his forecast in recent weeks, cutting his call to 7,700 from 7,950.
Tech downgraded, healthcare upgraded
Kwon turned cautious on technology, changing his view from overweight to equalweight.
He said the upcoming midterm elections pose a growing risk for the sector, particularly as political and local pushback against data centers intensifies.
“Over the last 3 months, active data center moratoriums rose 175% nationally, and we expect the momentum to continue, especially amid frontier labs voicing concerns around security,” Kwon wrote.
He added that those risks are growing given the high probability of Democrats sweeping the midterm elections, as the party tends to favour tighter AI regulation.
Kwon said he prefers software over semiconductors, which he expects will likely retest their July lows.
He also warned that the AI capital-spending cycle could be entering its late stage in 2027.
Kwon raised healthcare to overweight from equalweight, pointing to potential Democratic wins in the midterms as a potential boost for the sector.
He said a restoration of enhanced Affordable Care Act subsidies would benefit hospitals and exchange-levered health insurers.
Kwon bucks a broader Wall Street trend
Kwon’s target cut comes as several other Wall Street strategists have raised their forecasts.
Bank of America and Tallbacken Capital Advisors both boosted their year-end S&P 500 targets on Monday, while JPMorgan Chase and veteran strategist Ed Yardeni also raised their targets in August.
The divergence comes as a clash between the Trump administration and AI industry leaders adds further pressure on markets that are already uncertain about whether the large investment in AI infrastructure will ultimately pay off.
Developers including Anthropic and OpenAI have called for slowing development of the most advanced AI systems to prevent catastrophic outcomes, while President Trump has pushed to keep the US ahead in the AI race.
Earnings still strong, but risk builds for 2028
Kwon said the current earnings cycle remains historically strong. “It’s been one of the strongest EPS cycles in history,” he wrote.
“Annualized 10-yr EPS growth is expected to reach 14% by 2027, surpassed only by the 1950s post-WWII bull market.”
He said he doesn’t see much risk to earnings next year, but warned that 2028 earnings are more vulnerable to a slowdown in AI spending.
Equity allocations at a 57-year high
Kwon estimates current equity allocations at 72%, the highest level since 1969, well above the roughly 60% he says his model suggests is appropriate.
He said the gap between actual allocations and his model’s estimate is now wider than it was during the dot-com bubble, which he sees as a signal of increased market vulnerability heading into next year.
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