The investment arm of Wells Fargo doesn’t want to put a dime more into stocks this year because its investing strategist thinks the market is too precarious, owing to the coronavirus and the election.
In Christopher Harvey’s estimation, the S&P 500 likely will end 2020 down 6.3% from Monday’s closing price. Pandemic and election worries, plus some negative economic signs that could hobble the recovery, have set off a four-week stock slide, making yesterday’s 1.6% advance welcome.
Still, Harvey, Wells Fargo Securities’ head of equity strategy, told CNBC that he believes 2020 has hit its market high, which occurred Sept. 2, and it won’t top that.
Deploying fresh investments is foolish as long as the outcome of the presidential election is unclear, he said. He expressed hope that the debate between President Donald Trump and former Vice President Joe Biden tonight provides some clarity. Biden is currently ahead in polls, although, as the 2016 contest showed, things could change radically.
The worst-case scenario, from an investor’s standpoint (not to mention a citizen’s) is a post-election legal fracas over vote totals, he indicated. “If the debate tightens the race, one of the things that we worry about is the probability of a contested election,” Harvey said. “In a contested election, we can see 10% downside to the equity market.”
Then there’s the COVID-19 problem. “The market has a tendency to shoot first and ask questions later when it comes to COVID,” he said,
Taken alone, worrisome news about the virus could shave 2% to 4% from the market, he said. He fears stocks will tumble into a correction, amid a 50% volatility spike. September has seen a rise in US cases, although recently they seem to have flattened out. Nevertheless, he said, the infections could “break either way.”
Despite all this near-term gloom and doom, Harvey said he was optimistic about 2021. Chief reason: A vaccine should be in hand to eradicate the virus. “We’re longer-term positive because we do think there’s a COVID solution that hits the marketplace,” he said. Plus, earnings in next year’s first half will look good compared to the lousy showings in 2020’s first two quarters.
Post-pandemic, Harvey said he thinks industrial stocks will do well. They are what he calls “COVID beta” shares, meaning they should be central to market moves once infections are an unpleasant memory.
“What you need to see is just a gradual improvement,” he said, “and because the situation has been so dire for so long, we could see a tremendous amount of upside.”