AI giant's IPO delayed—turns out to be good news for U.S. stocks? Wells Fargo bets on a "summer rally"

U.S. stocks are expected to see a summer rebound. Wells Fargo believes that as quarter-end rebalancing disturbances fade, historical seasonality enters its strongest window of the year, new buying emerges, and second-quarter earnings are expected to exceed expectations, there is further upside potential for U.S. stocks in July.

Wells Fargo strategist Ohsung Kwon and his team released a report on Monday stating that recent market volatility has been mainly driven by quarter-end rebalancing, and this disturbance is expected to gradually fade in July. According to the report, historical data over the past century shows that the first half of July is the strongest period of the year for the S&P 500 index, with an average return of 1.35%.

Notably, the team believes that AI unicorns such as OpenAI and Anthropic delaying IPOs is not a negative, but actually creates buying opportunities for the AI sector. The report clearly states: "Buy AI on dips; IPO delays may be positive."

IPO Delays Bring Double Benefits: Lower Computing Costs + Reduced Capital Diversion Pressure

Previously, the market generally viewed the delay of IPOs by large AI companies like OpenAI and Anthropic as a reason for tech stock pressure, but Wells Fargo believes that this actually benefits the AI sector.

The report states that, on one hand, large IPO delays mean fewer new shares supplied to the market, which helps to alleviate capital diversion pressure; on the other hand, the prices of computing Tokens, driven up by IPO preparation, are expected to fall. Lower Token prices will encourage enterprise clients to expand AI adoption, driving up demand for computing power and extending the prosperity cycle of AI infrastructure.

At the same time, Wells Fargo's proprietary market sentiment indicator has recovered to a neutral level after issuing a sell signal in May; quantitative funds experienced heavy deleveraging in the last week of June and are now largely back to neutral positions, significantly relieving the previous oversold pressure in the market.

Two weeks ago, Wells Fargo raised its year-end target for the S&P 500 index from 7,300 to 7,950 points.

Increased Capital Inflows, Earnings Revision Window Opens

Liquidity is also a key reason for Wells Fargo’s bullish view.

The report estimates that the newly launched "Trump accounts" for eligible children are expected to bring about $20 billion in passive capital inflows, mainly allocated to large U.S. stocks.

Although this amount is only about 3% of the annual inflows into U.S. 401(k) pension funds, Kwon points out that unlike the typically diversified allocation of 401(k), these new funds will be more concentrated in U.S. equities, which could provide more significant marginal support to large-cap stocks.

Wells Fargo also expects the upcoming Q2 earnings season in two weeks to be an important catalyst for the next stage of the market.

The bank forecasts that the year-on-year earnings growth for S&P 500 constituents will rise from 19% in Q1 to 22% in Q2, with tariff rebates becoming an important factor driving earnings to exceed expectations. The report estimates that about $36 billion in rebate funds have already been issued, with about $90 billion more in potential rebates awaiting fulfillment, making consumer staples and industrial sectors the main beneficiaries.

Wells Fargo also notes that many companies have not included rebate gains in their previously released earnings guidance, which means there could be further upside to earnings forecasts as financial reports are disclosed.

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