Wells Fargo is warning that within the next couple of months, we could see the stocks drop by double digits. Chris Harvey, the head of equity strategy at Wells Fargo Securities, said that everything has been going positively right now, and that’s not necessarily a good thing.
“There’s a lot of things to like. Rates are lower, credit spreads are tighter, the Fed has been accommodative, we’ve got some sort of resolution with trade and tariff and sentiment has improved greatly,” Harvey explained to Bloomberg in a recent podcast. “And that’s what we don’t like.” When everything begins to go in the right direction, expectations are pushed even higher and that’s when investors should start to be concerned.
“Here, typically when people are a little bit more, what would we say, greedy, as opposed to fearful, it’s not always a great time. So with expectations so much higher, we’re just worried that things can change and change rather quickly,’’ said Harvey. The problem is that not many in the United States appear to be worrisome about much these days, even though there are many reasons to be.
The stock market is up, yet all the other numbers are being ignored and when it’s pointed out that we are in a gigantic bubble that keeps getting bigger, those people are “the crazy ones.”
“Typically, when people are a little bit more, what would we say, greedy, as opposed to fearful, it’s not always a great time,” Harvey said, with a nod to Warren Buffett’s oft-cited market mantra. “With expectations so much higher, we’re just worried that things can change and change rather quickly.’’
But Harvey is not the only analyst concerned that things might be just “too good.”
Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School of Business, said that he thinks this is one of the biggest market risks in 2020, in an interview with Barron’s Group’s Market Brief, which aired on Monday. “Actually, one of the dangers is that people could be throwing risk to the wind and this thing could be a runaway. We sometimes call that a melt-up and produces prices too high and then if there’s a shock, you come down to Earth and that could impact sentiment,” said Siegel, who called the 2008 recession.
Siegel contends that we are not yet at the peak of unsustainability, but there is a great possibility that we’ll get there, and soon. When the bubble finally begins to deflate, we’ll see the double-digit drop Harvey was speaking of.