Wells Fargo Forecasts S&P 500 Could Rise 11% in 2026, Driven by AI Capital Outlays and Larger Tax Refunds

Wells Fargo Investment Institute expects the S&P 500 to end 2026 between 7,400 and 7,600, suggesting a potential advance of roughly 11% from Tuesday’s close. The projection, released Tuesday, cites lower interest rates, an expanding artificial-intelligence investment cycle and increased consumer spending tied to forthcoming tax refunds as the main supports for next year’s equity performance.

Darrell Cronk, president and chief investment officer at the institute, told clients the index is likely to deliver “solid” annual returns even though market conditions could be uneven. The S&P 500 finished Tuesday’s session at 6,840.

Context of the forecast

The call from Wells Fargo joins a cluster of optimistic outlooks for the U.S. benchmark. According to data compiled by market analyst Sam Ro, Wall Street targets for the S&P 500 in 2026 presently stretch from 7,100 to 8,000. The index has already climbed 16% year to date. If that gain holds through December, 2025 will mark the third consecutive year of double-digit advances following increases above 20% in both 2023 and 2024. Over the past seven years, the S&P 500 has recorded yearly gains of at least 15% on six occasions, with four of those years exceeding 20%.

Three pillars supporting the outlook

Cronk highlighted a trio of drivers for next year’s anticipated growth:

• Monetary policy: Wells Fargo expects the Federal Reserve to begin lowering its policy rate while equity prices remain close to record territory. Historical data show that during the 20 instances since 1984 when the Fed cut rates with the S&P 500 within 2% of an all-time high, the index was higher every time 12 months later. A detailed archive of those rate decisions can be found on the Federal Reserve’s official website.
• Artificial-intelligence spending: Companies are continuing to expand capital expenditures related to AI infrastructure, including factory construction and accelerated depreciation allowances. By Wells Fargo’s estimate, corporate America is on track for approximately $230 billion in such spending, providing a material tailwind to profit margins.
• Consumer stimulus: The bank expects household balance sheets to benefit from provisions in President Trump’s One Big Beautiful Bill Act (OBBBA). The legislation is set to deliver what Cronk described as one of the largest springtime tax refunds in decades, increasing disposable income and, by extension, retail demand.

Market implications

The intersection of easier monetary policy and fresh fiscal support forms the core of Wells Fargo’s thesis. Lower borrowing costs typically reduce expenses for corporations and raise the present value of future cash flows, while larger refunds can spur near-term consumption. Combined with ongoing AI-related capex, these factors are expected to lift both revenue growth and profit margins, reinforcing equity valuations.

Cronk acknowledged the possibility of short-term volatility, noting that the “path won’t be smooth.” Nevertheless, he argued that the underlying forces described above should allow earnings to expand enough to justify the 7,400–7,600 target range by year-end 2026.

Recent performance and peer views

Even after a multi-year rally, the S&P 500 continues to attract constructive forecasts. The index closed Tuesday essentially unchanged at 6,840. Year-to-date leadership has come from large technology companies, many of which are central to the AI supply chain. Other strategists have echoed the idea that AI spending represents a multi-year secular trend capable of supporting elevated valuations.

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Some banks, however, have adopted a more cautious stance on the timing of rate cuts, arguing that persistent wage growth or unexpected inflation could slow the Federal Reserve’s easing cycle. Wells Fargo’s outlook assumes inflation will moderate sufficiently to permit at least one reduction in the federal-funds rate during the first half of 2026, with additional cuts possible thereafter.

Historical backdrop

Since 1984, episodes in which monetary policy loosens amid strong equity markets have often produced positive subsequent returns. Wells Fargo’s review of those periods indicates an average 12-month gain of 14% for the S&P 500, with no negative observations. While past performance is not a guarantee of future results, the firm believes the parallel conditions forecast for 2026 warrant confidence in a comparable outcome.

Over the last three calendar years, the combination of robust earnings growth, a resilient labor market and advancing productivity has helped the index overcome concerns about valuations and rate volatility. The bank expects similar dynamics to prevail next year, amplified by the tax-related cash injection and continued corporate investment in technology.

Should the S&P 500 finish 2026 within Wells Fargo’s target range, the index would achieve its fourth consecutive year of double-digit gains and set a new record for the longest streak of such returns since at least the mid-1990s. Market participants will watch incoming economic data, Federal Reserve actions and corporate guidance over the coming quarters for confirmation that the forecast drivers are materializing as anticipated.

Crédito da imagem: ANGELA WEISS / AFP via Getty Images