- According to Wells Fargo’s Chris Harvey, the S&P 500 could see a 20% swing this year on its way to 4,200.
- But before reaching that level, the index has downside potential that could take it to 3,400.
- “We think, again, what you’re dealing with is an economic slump, not a sharp sell-off,” he said.
The S&P 500 could see a 20% swing this year as the market navigates a mild economic downturn, according to Wells Fargo’s chief equity strategy Chris Harvey.
In a interview with Bloomberg TV on Tuesday, he said there is a downside risk of the S&P 500 falling to 3,400, which represents a drop of about 15% from current levels.
But eventually the index would recover to reach 4,200, up 5% from today, as inflation continues to slow and the market expects the Federal Reserve to start cutting benchmark rates, he said. Between peak and trough, that suggests a difference of 23.5%.
“We think, again, what you’re dealing with is more of an economic slump, not a sharp sell-off, not something that’s going to be horrific,” Harvey said. “And that allows us to muddle through that.”
He added that the Fed will stop raising interest rates this year, and even if the central bank doesn’t start cutting interest rates this year, “the market will believe it is going to cut and we should reflect that in the form of the yield curve and interest rates.”
The Fed raised rates by 425 basis points last year and is expected to approve several more quarter-point increases in 2023, bringing the peak rate to around 5%.
However, a still-robust job market has raised fears of continued inflation, which may require the Fed to become even more aggressive on monetary policy, potentially sinking the economy and stocks.
Bob Michele, JPMorgan Asset Management’s chief investment officer, told Bloomberg TV in a separate interview on Tuesday that the rate would eventually hit 6%.
He added that the Fed has had only one rate hike cycle since 1988 that has not ended in a recession, and he does not expect a soft landing in 2023.
“The delayed and cumulative impact of all the tightening we are seeing will eventually bite,” he warned. “It’s incredibly ambitious to think we can get away with that.”