Investing.com -- Wells Fargo told clients in a new note that its sentiment indicator has now triggered a “Buy” signal, a sign of extreme investor bearishness. Historically, the signal has been followed by gains in the S&P 500.

Strategist Ohsung Kwon said the indicator hit -1.0, its first Buy signal since June 2025, compared with -0.5 last week. It follows a “Sell” signal in August.

After previous Buy signals, the S&P 500 rose 89% of the time, gaining an average of 6.5% over the next three months. However, returns were generally weaker in environments of decelerating profits and negative liquidity.

“Caution is warranted in a decelerating profits/negative liquidity environment, but sentiment may have gotten too bearish around AI financing, midterms, and Iran,” Kwon wrote.

The strategist still expects a choppy market into year-end, with semiconductors range-bound and posting lower highs.

He said the bull case for AI infrastructure rests on 2027, when earnings should be robust and supply-demand should remain very tight.

The concern is a likely slowdown in 2028 as more supply comes online. Wells Fargo calculates that semis are implying a through-the-cycle net margin of 37%, compared with 46% currently and a pre-AI peak of 32%.

Kwon added that the bull case is capital discipline, not more capex. He estimates that neoclouds account for 15% of 2027 capex, and that every 10% haircut equals a 2% hit to semiconductor EPS.

“We continue to prefer Hyperscalers + Infra Software that got sold off with Semis, unlike in July,” he said.

Wells Fargo also flagged a contrarian Buy sentiment signal for capital goods.

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