Wells Fargo Wealth and Investment Management Chief Investment Officer Darrell Cronk has raised his year-end target for the S&P 500 to a range of 6,600-6,800 points as equity markets reach new highs and the Federal Reserve embarks on an easing cycle. During an interview, Cronk outlined his market outlook, noting that while volatility is expected to increase, the current economic environment supports continued growth.

He believes the Fed's recent rate cuts have created a positive market environment, stating that "high-yield spreads hit new lows this morning." He added that despite rate reductions, banking stocks are reaching record highs—a rare phenomenon that historically signals economic strength rather than weakness.

Cronk is particularly optimistic about long-term market prospects, suggesting that "2026 could be an even stronger year." He cites stable fiscal policy, continued monetary easing, and robust corporate balance sheets as supporting factors. He emphasized that "the market is signaling that everything will be in place from the remainder of this year through next year."

When discussing specific sectors, Cronk expressed skepticism about the recent strong performance of small-cap stocks. He acknowledged that small-caps typically outperform in two scenarios: during economic recovery periods and Fed aggressive rate-cutting cycles. However, given the significant market capitalization differences, he questions the sustainability of the current rally.

Cronk explicitly opposes shifting investments from technology to small-cap stocks, stating: "The notion of rotating from tech stocks to small-caps... seems somewhat absurd to us." He worries about quality deterioration in the small-cap space, noting that "private capital has flooded in, cherry-picking many quality companies and taking them private."

Based on these assessments, Cronk confirmed that Wells Fargo has recently adopted an underweight position on small-cap stocks. "We believe this remains the correct strategy," he stated.