Wells Fargo sees an 8.0% upside in the benchmark S&P 500 index

The benchmark S&P 500 index has climbed by more than 20% this year and is currently trading near record levels. For many investors, now would be an opportunity to take profit, but Wells Fargo says SPX has more to offer in the upcoming months.

Wells Fargo’s Christopher Harvey said this morning the benchmark index could jump to 4,825 by the end of the year that translates to an about 8.0% potential upside from here.

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“Historically, when S&P 500 has a price return of more than 10% in the first eight months of the year, the average for the last four months has never been below 8.0%,” he said in a note to clients.

Stellar earnings could be a catalyst

According to Refinitiv, about 87% of S&P 500 companies have beaten Street estimates for profit this earnings season and have raised guidance for EPS by 21%. Harvey cited “trend showing no sign of abating” for his bullish call on SPX.

Compared to the pandemic lows in March 2020, the benchmark index has gained more than 100%. Recently, however, the gains have slowed down as the U.S. Federal Reserve hinted at the possibility that it might taper earlier than expected.  

“If and when the Fed does finally utter the T-word (taper), we would expect the market to take a step back,” Harvey wrote.

Ritholtz’ Josh Brown recommends caution

On the contrary, however, Ritholtz Wealth Management’s Josh Brown recommends that investors be wary of such forecasts. On CNBC’s “Halftime Report”, he said:

“Most of the times when strategists put in a note like this, they’re extrapolating the current trends out into the future. If you looked at 2020 outlooks in the middle of 2019, it’s laughable how off they were because of the COVID-19 pandemic that literally changed the world. There’s nothing that says it couldn’t happen again in the future.”

Meanwhile, all eyes are set on the Fed’s annual Jackson Hole Symposium this week. Last month, former Wells Fargo CEO had warned of a 20% or more decline in the market over the next 18 months.