‘Best of stock market is behind us,’ Wells Fargo’s Chris Harvey urges investors to seek protection

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Wells Fargo head of equity strategy on his bearish outlook

Wells Fargo is warning investors that the year’s record market gains could soon start slipping away.

It’s a situation prompting the firm to get “more aggressive” in its latest strategy to take risk off the table.

“We are not bullish on the stock market,” Christopher Harvey, the firm’s head of equity strategy, said Wednesday on CNBC’s “Trading Nation.” “We think that investors should start moving up the quality ladder.”

According to Harvey, this year won’t end the way it began with stocks ripping to new highs.

He expects the SP 500 to drop about 1 percent this year from current levels. His year-end price target is 2,475.

“Hold on to your gains. You want to start protecting,” he added. “We think the best of the stock market is behind us not in front of us.”

Harvey predicts the stock market will further deteriorate into 2018. He doesn’t see much that could catapult stocks to another banner year of double-digit gains.

“The problem is rates are lower, credit spreads are tighter and growth has been strong. What’s the next act? And, we don’t see the next act,” cautioned Harvey. “As we look forward, we’re thinking and looking at mid-single digit returns. And, if we go a lot higher from here, I think we’re just stealing from tomorrow.”

Despite his bearish view, he isn’t avoiding stocks altogether. Harvey’s goal is to play more for rotation and small, incremental gains.

“We think there are opportunities on an individual basis,” he said. “We like staples over consumer discretionary. We like REITs over utilities. We like hardware over semiconductors.”

Yet, there is something that could push Harvey back into bullish territory— one that has nothing to do with pro-business legislation such as tax cuts potentially coming out of Washington.

“What we want to see is a healthy repricing for risk. Something in or around 5 percent seems about right. We’re not arguing that the fundamentals are bad,” Harvey said. “What we’re arguing is price isn’t all that attractive for us. So, if we get a correction or we get a pullback on price, that would make us more excited.”

For another view, see Second-longest bull market ever aging gracefully, but investors wonder how long it will last

Not a Scientific Survey. Results may not total 100% due to rounding.

The full interview with Wells Fargo's Chris Harvey

Stephanie Landsman

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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Brian Sullivan is co-anchor of CNBC’s “Power Lunch” (M-F,1PM-3PM ET), one of the network’s longest running programs, as well as the host of the daily investing program “Trading Nation.” He is also a frequent guest on MSNBC’s “Morning Joe” and other NBC properties.

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