Wells Fargo cuts S&P 500 target as yields climb ahead of Fed hike

The sequence of events is what stands out: Wells Fargo lowered its target a full day before the central bank raised rates, meaning the bank's more cautious stance was already factored in before the Fed confirmed the move rather than triggered by it. This order suggests that the repricing around higher bond yields had already begun across segments of Wall Street ahead of the Federal Open Market Committee statement making the tightening official, with the 10-year Treasury's rise during the preceding days already compressing valuations. The bank's profit forecasts for 2027 and 2028 were both increased rather than reduced, which signals to markets that the growth narrative remains in place according to Wells Fargo, and the correction it has highlighted is about paying a smaller multiple for unchanged earnings rather than a worsening profit outlook.

--- Wells Fargo adopted a more cautious equity stance a trading session before the Fed made the rate increase official.

• Wells Fargo reduced its year-end 2026 S&P 500 target to 7,700 from 7,950 on Tuesday, one trading day before the Fed's rate hike announcement
• Chief equity strategist Kwon pointed to a growing watchful approach the bank took entering September on valuation compression concerns
• Wells Fargo increased, not decreased, its forecast for earnings: moving to $425 per share for 2027 and $460 for 2028
• Although the smaller target was set, it identified a potential 5%-10% pullback from present levels as a possible risk
• The adjustment occurred as Treasury yields advanced into the FOMC gathering, with the 10-year at one stage reaching heights last seen in 2007
• The reduction mirrored a similar target cut from Yardeni Research the same day, likewise citing escalating yields

Wells Fargo lowered its end-of-2026 price objective for the S&P 500 to 7,700 from 7,950 on Tuesday, one session before the Federal Reserve enacted its 25 basis point rate increase, highlighting that the bank's wariness had been mounting prior to the decision instead of being a response to it.

Chief equity strategist Ohsung Kwon described the move as part of a more careful approach the bank had been taking leading into September, expecting valuation declines even as the foundational earnings outlook continued to strengthen. Notably, Wells Fargo did not cut its profit forecasts together with the target reduction. It raised its per-share earnings projections for the S&P 500 to 425 dollars for 2027 and 460 dollars for 2028. The takeaway was less about weaker corporate performance and more about the market needing to accept a reduced multiple for identical profits, especially with borrowing expenses already advancing toward the Fed gathering.

The timing corresponds with a wider pre-meeting repricing across Wall Street. Treasury rates had been moving higher in the sessions approaching the FOMC decision, with the 10-year temporarily approaching levels unseen since 2007, and that yield increase was already applying pressure to valuation assumptions before the Fed's announcement confirmed the tightening move on Wednesday. Wells Fargo's target cut essentially positioned ahead of a hike that had yet to be announced, treating a prolonged higher rate trajectory as nearly certain enough to merit adjusting equity valuations in advance.

Even with the lower price target, Wells Fargo avoided becoming thoroughly negative. The bank outlined a possible 5% to 10% drop from present levels as a risk possibility rather than a central scenario, and its upgraded 2027 and 2028 profit assumptions indicate the basic growth narrative holds in its view. The change instead indicates a view that the balance of risk and reward for spending on additional multiple growth had tightened considerably even before the central bank confirmed its rate decision, leaving the bank in a defensive posture heading into a meeting whose result then mostly matched expectations.