(April 8): Wells Fargo raised its year-end target for US benchmark S&P 500 index to 5,535 on Monday — the highest among Wall Street brokerages — citing optimism around artificial intelligence and a potential easing of borrowing costs.

The index has gained 9% so far this year, broadly boosted by expectations of interest rate cuts and investor frenzy around the AI boom.

"The bull market, AI's secular growth story, and index concentration have shifted investors' attention away from traditional valuation measures and toward longer-term growth and discounting metrics," Wells Fargo said in a note.

The so-called Magnificent Seven stocks — Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, Nvidia and Tesla — which are heavyweights of the index, are benefitting from the AI tide.

The Fed had stuck to its view of three rate cuts last month, which bolstered the broad rally in US equities, although recent hawkish comments from policymakers and strong economic data have taken some steam off it.

Wells Fargo also lifted the S&P 500's earnings per share estimate to US$242 from US$235 for this year.

"We believe equities have some upside from here, but still anticipate a volatility spike in first half of 2024," the brokerage said.

"A "melt-up" in the second-half of 2024 appears increasingly likely, partly driven by political outcomes that support greater M&A and partly by an anticipated multi-year easing cycle that supports risk-taking," Wells Fargo added.

The revised target represents a near-6.4% upside to the index's Friday close of 5,204.34. The brokerage had previously forecast its year-end target at 4,625.

Last month, HSBC and BofA Global Research projected that the index would end 2024 at 5,400, while Oppenheimer estimated 5,500.