Market melts to new highs, but 2022 looks tough: Wells Fargo – News Couple

Market melts to new highs, but 2022 looks tough: Wells Fargo

Chris Harvey’s reign as the biggest bull of the year won’t extend into next year.

The head of equity strategy at Wells Fargo Securities, whose 2021 S&P 500 target is 4,825, expects Wall Street to see a vibrant rally at the end of the year and then see a loss in 2022.

“It’s going to push stocks to a level they can’t afford. We’re going to have a melting stock market,” he told CNBC’s Trading Nation on Friday. “We’ll get stocks to a level where fundamentals and valuations don’t support them.”

The S&P 500, Nasdaq and Dow finished the week in record territory. The S&P and Nasdaq are up 7% in October while the Dow is up 6%.

“What we’re seeing from a lot of individuals and investors is that they feel the market is unbreakable at this point in time,” Harvey said. “We’ve seen a lot of pullbacks. You’ve solidified, but you’ve never broken.” . “This comes up with another level of fear of fear [fear of missing out]This brings a level of confidence.”

Harvey lists strong economic fundamentals, better-than-expected earnings, lower costs of capital and massive cash on the sidelines as fuel for gains.

“It’s late in a bull market,” he said. “Now is a period when the irrational becomes more rational. Things you don’t expect to happen can happen, and most likely will.”

Harvey stresses that momentum names, which include banks, will be key drivers at the end of the year. He describes finances as a “hidden leadership play” that would get traction from the Fed’s gradual plans.

Don’t go fishing at the bottom

“It will put upward pressure on interest rates, which is good for banks,” Harvey said. “We want to buy things that work well. We don’t want to fish from the depths. We don’t want to buy broken stories.”

He suggests playing iShares MSCI USA Momentum Factor ETF.

“The funny thing here is that a lot of people think these are high-tech stocks and they’re all tech,” he noted. “If you look at the Momentum Index and the Momentum ETF, 20% of it is in banks and three of the top ten names in the Momentum ETF are banks. So, you have very good diversity.”

Harvey estimates that market meltdown will last three to six months. In the second quarter of next year, the Fed is expected to be more hawkish, slowing growth and uncertainty surrounding the midterm elections to start creating headwinds that could lead to a 10% correction.

“I hate that comment, but I’m going to give it to you anyway,” Harvey said. “I think it’s ‘May sell out and it goes away.'” By the time you get to late spring, early summer, you really want to get a little more defensive.

It’s still too early for companies to present S&P targets for next year. Harvey’s goal is 4,715. The most bullish estimates to date include Jonathan Golub of Credit Suisse, who has a target of 5,000 S&P.


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