Wells Fargo Securities’ Christopher Harvey won’t buy the post-election bounce.
“You want to fade this rally,” the firm’s head of equity strategy told CNBC’s “Trading Nation” on Wednesday. “It’s about stimulus. We now have — or what we believe we have — is [Joe] Biden as president and no longer a blue wave.”
Harvey contends it’s an environment that’s unfavorable for a massive coronavirus aid package.
“Whatever stimulus you thought you would get, you have to shrink it down,” he said.
Harvey believes Wall Street hasn’t come to terms with it yet.
“The market feels comfortable with what we have at this juncture,” said Harvey, adding that investors believe risks surrounding the election won’t get worse.
The major indexes rallied across the board on Wednesday. The S&P 500 surged 2.2% to close at 3,443.44 while the Dow gained 1.3% to close at 27,847.66. Plus, the tech-heavy Nasdaq saw its best day since April.
“Some of the magnitude is little bit off to us,” Harvey said. “The outperformance that we’re seeing today is exceptional.”
Under a Biden administration coupled with surging virus cases nationwide, Harvey cites higher economic lockdown risks as a chief reason why mega cap stay-at-home trades are rallying.
“People are really running with the idea that we’re going to be facing some kind of lockdown,” he said. “That’s not our view. Our view is we’re going to have some sort of Covid solution before the end of the year.”
Harvey’s S&P 500 year-end target is 3,388, which implies about a 2% drop from its latest close.
“We might have gotten a little bit ahead of ourselves, and that’s also why we’re thinking you get a little bit of a pullback here,” he notes.
Harvey plans to take advantage of the next downturn by putting money into work in cyclical groups, particularly small caps.
“Longer-term, we actually think this is pretty good,” Harvey said.