Wells Fargo Securities has officially released its 2024 stock market forecast.
The firm’s equity strategy head Chris Harvey sees a shaky path to his S&P 500 year-end target of $4,625.
“It’s really hard to get excited. If we have better.” [economic] Growth, then the Fed does nothing,” he told CNBC’s “Fast Money” on Monday. “If our growth is worse, the numbers are going to go down and then the Fed will eventually cut. The second part will be better, but the first part is going to be really bad.”
Harvey’s target is up just 75 points from Monday. S&P 500 to close.
He said, “Can we go higher from here? Sure, we can go a little higher. But I don’t think you can go a ton higher.” “People have talked about 5,000. I don’t see how you’ll get to that level.”
In its official 2024 outlook note, Harvey told clients to prepare for a “trade market” rather than a “buy and hold position.” Their early-year strategy: Start with a risk-averse stance.
“The VIX [CBOE Volatility Index] Is above 13. Every time we’ve gone into the new year with the VIX at 13, we’ve seen spikes. We’ve seen equity markets retreat and that’s not a great setup for 2024, Harvey said.
He warns that the high cost of capital is an additional market problem as it prevents multiples from growing higher.
“It’s really hard for me to hit a very high price target as long as the cost of capital remains high,” Harvey said.
Nevertheless, he still sees opportunities for investors.
“What we want to do is we want to go to places where there are a lot of sales. We’ve just upgraded utilities Today. we upgraded Health care,” Harvey said. “Those are areas that have good valuations, good fundamentals and most people aren’t really there at this point.”
Wells Fargo Securities has unveiled its 2024 stock market forecast, and Chris Harvey, the firm’s head of equity strategy, suggests a challenging journey ahead for the S&P 500. Despite setting a year-end target of $4,625, Harvey expresses caution about the market’s prospects and emphasizes a trade-focused approach over a buy-and-hold strategy.
Shaky Path to Year-End Target
Harvey acknowledges the difficulty in finding enthusiasm for the market’s future trajectory. The path to achieving the year-end target of $4,625 is seen as precarious, contingent on economic growth and Federal Reserve actions. Harvey highlights the dichotomy: better economic growth could lead to the Fed’s inaction, while worse growth might prompt a Fed rate cut. This dual scenario creates uncertainty, making the first part of the journey challenging.
Limited Upside Potential
While Harvey acknowledges the possibility of the market going slightly higher, he remains skeptical about substantial gains. The target is only 75 points above the current S&P 500 close. The mention of reaching 5,000 seems improbable to Harvey, who doubts the market’s ability to attain such levels.
Trade Market Outlook
In the official 2024 outlook note, Wells Fargo Securities advises clients to prepare for a “trade market” rather than adopting a traditional “buy and hold” position. The strategy encourages a risk-averse stance, especially considering the elevated CBOE Volatility Index (VIX), which historically has led to market retreats.
Concerns About Cost of Capital
Harvey points out the additional challenge posed by the high cost of capital, limiting the potential for multiples to grow higher. This factor, coupled with economic uncertainties, contributes to the cautious outlook for achieving ambitious price targets.
Opportunities in Defensive Sectors
Despite the overall caution, Harvey identifies opportunities for investors, particularly in defensive sectors. He recommends focusing on areas with strong sales, recently upgrading utilities and healthcare. These sectors boast good valuations and fundamentals, providing a potentially stable investment avenue amidst market uncertainties.
Treasuries as an Option
In a surprising turn, Harvey suggests considering Treasuries as an option for investors. Despite being the head of equity strategy, he highlights the attractiveness of certain options in the bond market, offering a decent rate of return with lower risks.
2023 S&P Target and Conclusion
Harvey’s 2023 S&P target of 4,420 indicates a three percent decline from Monday’s close. This projection aligns with the cautious sentiment, emphasizing the challenging landscape and the need for investors to adopt a vigilant and strategic approach in the face of evolving market dynamics.Wells Fargo’s Cautionary Outlook: Navigating Challenges in the 2024 Stock Market
‘I hate to say this as the head of equity strategy’
Harvey also sees Treasuries as an option.
“If you look at options, there are things that are quite attractive. And, being the head of equity strategy I hate to say this, but you can put money in front of the curve and make quite a good rate of return And not take too many risks,” Harvey said.
His 2023 S&P target is 4,420 – which represents a three percent decline from Monday’s close.
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