Investors ended June on an uneasy note as concerns over the sustainability of the artificial intelligence boom, elevated interest rates and fears of rising inflation sparked sharp swings across US equities.
But while the recent pullback dented sentiment, several strategists believe July could mark the beginning of a fresh leg higher for stocks, supported by strong seasonal trends, robust corporate earnings, delayed AI listings and renewed investment flows.
The benchmark S&P 500 has still gained more than 8% so far this year, while the technology-heavy Nasdaq Composite has advanced about 11%, extending a bull market that has lasted more than three years.
Despite the recent turbulence, analysts say the backdrop entering July appears considerably more supportive.
Wells Fargo bets on a strong July rally
Wells Fargo is among the most optimistic voices heading into the new month, arguing that July has historically been one of the strongest periods for US equities and that several additional catalysts could reinforce that pattern this year.
In a strategy note led by Ohsung Kwon, the bank described a “strong summer rally ahead,” pointing to seasonality, improving investor positioning, expected earnings growth, fresh inflows from so-called Trump accounts and delays to major artificial intelligence-related public offerings.
The bank expects investor sentiment to reset after June’s volatility, which it largely attributes to quarter-end portfolio rebalancing.
It also expects uncertainty surrounding the US midterm elections later this year to become a bigger market factor only in September.
According to Wells Fargo, the first half of July has produced the strongest seasonal performance of any comparable period over the past century, with the S&P 500 delivering an average return of 1.35%.
The bank also noted that its proprietary investor sentiment indicator has returned to neutral territory after triggering a sell signal in May.
Quantitative investment funds, which suffered losses during the final week of June, are also entering July with far more neutral positioning than before the recent selloff, potentially creating room for renewed buying.
Reflecting its optimism, Wells Fargo raised its year-end target for the S&P 500 to 7,950 from 7,300 two weeks ago.
Recent pullback driven by AI spending concerns
Much of June’s weakness centred on the technology sector, particularly the so-called Magnificent Seven stocks that have powered markets higher over the past two years.
Matthew Timpane, senior market strategist at Schaeffer’s Research, said the broader market had remained relatively resilient despite pressure on the largest technology companies.
“I think June has held up relatively well despite pressure from the Magnificent 7, especially as both the dollar and yields moved higher this month,” he said.
Timpane noted that the US dollar had broken out of a year-long trading range before retreating from its May 2025 highs, while Treasury yields also remained elevated.
According to Schaeffer’s data, the Roundhill Magnificent Seven ETF has declined roughly 12.7% over the past month.
“Traders and investors do not appear to be in love with the large hyperscalers right now, as they continue to spend aggressively on AI capex. In some cases, these companies are even willing to issue debt and equity in size to continue the AI buildout,” Timpane said.
Even so, historical trends suggest the weakness may not persist.
Schaeffer’s analysis shows July has generated positive returns 80% of the time over the past two decades, with average gains of 2.67%.
Over the last 10 years, July has delivered positive returns every year, averaging gains of 3.51%.
Timpane said investors should continue monitoring the US dollar and Treasury yields closely.
“If July’s bullish seasonality is going to play out, we want to see the dollar remain contained. Likewise, we want to see rates fall,” he said.
AI IPO delays could extend the technology cycle
One of the more surprising bullish arguments comes from the delayed public listings of several high-profile AI companies.
Recent reports suggesting that OpenAI and Anthropic may postpone their public market debuts have weighed on sentiment across the technology sector, with investors initially viewing the delays as a sign of weakening market conditions.
Wells Fargo, however, argues the opposite.
The bank believes postponing these listings reduces new equity supply, providing support for existing technology shares.
It also argues that delayed IPOs could have a second-order benefit for the broader AI ecosystem.
According to Wells Fargo, companies preparing for public listings had been under pressure to improve profitability by raising token prices charged to enterprise customers using their AI models.
If IPOs are delayed, that pressure could ease, allowing token prices to remain lower.
Lower pricing could stimulate demand for computing power, ultimately extending the AI investment cycle rather than shortening it.
“Buy the AI dip: IPO delays are bullish,” Wells Fargo said.
Earnings and fund flows could provide additional support
Analysts also expect corporate earnings to provide another catalyst for equities during July.
Wells Fargo projects second-quarter earnings per share growth of 22% year over year, accelerating from the 19% growth recorded during the first quarter.
The bank expects part of that improvement to come from tariff refunds issued to companies.
It estimates approximately $36 billion has already been distributed, with another $90 billion potentially still to come.
Consumer staples and industrial companies are expected to be among the biggest beneficiaries, with many businesses indicating that potential refunds have not yet been incorporated into earnings guidance, leaving room for upside surprises.
Fresh investment flows may also support markets.
Wells Fargo estimates newly created “Trump accounts” for qualifying children could generate roughly $20 billion of price-insensitive buying concentrated in large-cap US equities.
Although the amount represents only a small fraction of annual retirement account inflows, the bank argues these accounts could have an outsized impact because they are expected to invest primarily in US stocks rather than diversified portfolios.
After a volatile finish to June, analysts believe these combined forces could help shift investor attention away from recent concerns over AI spending and toward the stronger seasonal backdrop that has historically favoured US equities in July.
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