Investors Are Unprepared for Stock Shocks, Wells Fargo Strategist Warns

The stock market is getting ahead of itself on bets the Federal Reserve’s fiscal tightening is over, according to Wells Fargo’s Chris Harvey.

“Tomorrow, we expect Chairman Powell to continue to emphasize ‘higher for longer’ and to try to dissuade the markets of near-term easing,” the head of US equity strategy at Wells Fargo Securities said in a phone interview ahead of the central bank rate decision Wednesday. “However, we doubt market players will have a change of heart regarding the timing of upcoming rate cuts.”

US equities are due for a drop in the first half of 2024 as corporates’ pricing power fades and historical precedent suggests a rebound in volatility early next year, according to Harvey. He’s the latest Wall Street strategist to raise doubts that the stock market’s recent resilience can persist into next year.

Wall Street’s fear gauge, the Cboe Volatility Index or VIX, has been subdued lately, trading below 13 and near prepandemic lows. “But while the VIX indicates smooth sailing, we see choppier markets ahead,” Harvey said.

Such a low level “indicates that the market is looking at the past” Harvey said. “There’s nothing that really scares it and there’s nothing that’s going to surprise it.”