Wells Fargo Securities’s Chris Harvey is building a significant part of his strategy on a consumer comeback.
From hotels to casinos to restaurants, many of this year’s winning trades will involve spending away from home, the company’s head of equity strategy predicts.
“We really want to get in touch with the consumer,” Harvey told CNBC’s Trading Nation on Wednesday. “We haven’t seen the consumer come out of a recession this much in a long, long time.”
Harvey, who is in the V-shaped camp of economic recovery, believes the time has come to step up exposure to consumer games. He claims a surge in Covid-19 vaccinations will help strengthen the consumer services group, which he upgraded from neutral to overweight last month.
Consumers “want to spend money for themselves and they want to spend money for their families. We think that is a very, very strong cocktail, especially when it comes to monetary and fiscal policy,” said Harvey.
While Harvey focuses on consumer games, he curbs his enthusiasm for early cycle trades. He believes the bullish activity for machines, semiconductors, metals and small caps is in the late innings.
“Last year we were very positive about risk in terms of deep, deep value and small caps,” he said. “They have all done incredibly well and are even better than we ever expected.”
Now he wants to focus on groups that are less overwhelmed and do not do as well compared to the overall market.
“Consumers will be spending a lot of money on services,” said Harvey. “Many of these names have not done as well as the rest of cyclical trading since the start of the year and for the past 12 months.”
Shifting funds out of growth stocks, under pressure from rising government bond yields, is a prudent way to get exposure, Harvey said.
“They want to keep improving growth and momentum-type stocks – especially on strength,” he said. “These are the areas … where there will be a lot of stress in the next few weeks and months.”
Its target price for the S&P 500 year-end is 3,850, down 1% from Wednesday’s close of trading.
“You could have closed your eyes and woke up 12 months ago and [had] Great performance, “said Harvey.” We don’t think this will happen in the next 12 months. “
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