The powerful rally in technology stocks isn’t going to stop until the Federal Reserve gets more aggressive and breaks the economy, according to Wells Fargo’s Chris Harvey.
(Bloomberg) — The powerful rally in technology stocks isn’t going to stop until the Federal Reserve gets more aggressive and breaks the economy, according to Wells Fargo’s Chris Harvey.
The market now resembles the tech boom of 1999 and 2000, which didn’t end until tighter monetary policy had roiled stocks, the head of equity strategy at Wells Fargo Securities said in a Bloomberg TV interview. Harvey was among the few strategists who correctly predicted a post-earnings jump in equities in October last year. However, his call that the S&P 500 could trade as low as 3,410 in 2023 has yet to materialize.
“The number one issue is: tech is not going to roll over, the major theme isn’t going to roll over until you crack the economy. That’s what happened back in 1999, that’s likely what’s going to happen now,” Harvey said on Bloomberg Surveillance. “And I don’t think you can crack the economy until the Fed gets more aggressive. So we’ll have some wiggles, I think we’ll have a pullback in the market, we’ll have a pullback in big tech, but that overall theme is still in place and not until the economy breaks do we really think about that trend breaking.”
The Fed paused its tightening campaign in June, but policymakers projected rates would move higher than previously expected in response to surprisingly persistent price pressures and labor-market strength. US stocks have climbed this year, led by a narrow group of major tech shares as investors bet that exposure to artificial intelligence will boost profits.
Harvey said that while the Fed has been aggressive in fighting inflation, the US economy has turned out to be a lot less rate-sensitive than expected, and the probability of a recession has decreased since the March banking crisis. He pointed out that both consumers and companies remain financially resilient, and while some sectors have cracked under the pressure of rising borrowing costs, others are still robust.
“So really, you need some sort of shock to get us into a recession,” he said. “We need a lot more time. This is taking a lot longer than we expect.”
Wells Fargo’s year-end target for the S&P 500 is 4,200 — about 4.3% below the current level.
Another factor that’s driving this year’s strong gains in big tech stocks is the fact that institutional investors have been underweight the likes of Apple Inc. and Microsoft Corp. for years and are now catching up, according to Harvey.
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