Delays to megacap IPOs, strong earnings and seasonal factors all work in the stock market's favor

"Strong summer rally ahead" is the call from Wells Fargo.

July is generally a good month for U.S. equities, and Wells Fargo strategists see no reason this July should be any different. In fact, the bank cites a quartet of positive arguments in favor of the stock market from seasonality, earnings, inflows from so-called Trump accounts and delays to the megacap AI listings.

Need to Know: It wouldn't take much for the stalled-out megacap AI trade to get back on track

The bullish call on stocks was outlined in an strategy note from lead author Ohsung Kwon and team published Monday. Bookending the predicted strength are the recent volatility in shares that Wells Fargo attributes to quarter-end rebalancing, and expected volatility in September when the politics of the U.S.'s midterm elections in November may start to impinge on markets.

Kwon and team expect a July reset in the mindset of investors, partly because, over the last century, the first fortnight of July has the strongest seasonality of any period generating an average return of 1.35% on the S&P 500 SPX. Wells Fargo's proprietary sentiment indicator, moreover, is back at neutral after having triggered a sell signal back in May.

The first half of July has the strongest seasonality of any period.

Additionally, quant funds that have suffered a damaging losing streak over the last week of June are now much more neutrally positioned than they were before the recent rout began.

Two weeks back, Wells Fargo lifted its year-end target for the S&P 500 from 7,300 to 7,950.

In recent weeks, the rumored delays in the huge public listings of OpenAI and Anthropic owing to poor market conditions have been touted as reasons for weakness in the Magnificent Seven MAGS and the tech sector XLK more generally. Wells Fargo, though, thinks differently. It says straight-up: "Buy the AI dip: IPO delays are bullish."

New equity supply set to test previous highs asmega-IPO lockups expire

Why? Well, new equity supply will be lower for starters. But also because the previous IPO plans were encouraging the AI labs to raise token costs (the means by which corporate clients pay the labs for computing power) to enhance profitability, their delay may imply "lower token prices meaning more demand for compute, extending the cycle."

Fund flows should also be incrementally supportive of stocks. Wells Fargo's team has calculated that "Trump accounts" - new investment accounts established for qualifying children - will generate $20 billion in price-insensitive buying of mainly large-cap stocks. Acknowledging that, at just 3% of estimated annual 401(k) flows, this influx is modest, Kwon argues that they could be more meaningful as they will be specifically dedicated to U.S. stocks whereas 401(k)s tend to diversify into other assets.

The second-quarter earnings season, starting properly in a fortnight's time, should provide stocks with additional impetus, Wells Fargo contends. Headline earnings-per-share growth of 22% on a year-over-year basis will accelerate from the 19% chalked up in the first quarter and will be boosted by tariff refunds, the bank projects. Wells Fargo guesses that $36 billion of refunds have been issued already, with potentially another $90 billion in the offing.

Those sectors most likely to benefit from the refunds are consumer staples VDC and industrials XLI, and the Wells Fargo report goes into great detail to relate how many individual companies have been discussing possible EPS-growth upside from this trend. Lots of companies report that refunds are not presently included in their outlooks or earnings guidance, suggestive of that possible upside.

-Jules Rimmer

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June 30, 2026 07:51 ET (11:51 GMT)

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