A painful earnings season shouldn’t drive stocks back to the low, Wells Fargo’s Chris Harvey predicts

Finance

Wells Fargo Securities’ Chris Harvey believes the worst is behind the market — even as Wall Street braces for a painful earnings season.

According to the firm’s head of equity strategy, the steps taken by the Federal Reserve and Capitol Hill to stabilize the coronavirus-battered markets are creating a pivotal floor under stocks.

“Although the coronavirus is still out there and is still pending, it does look like we’re beginning to crest in Italy and perhaps New York City, and that’s a positive,” he told CNBC’s “Trading Nation” on Wednesday. “We’re in a much better place today than we have been in a long time.”

On Wednesday, the major indexes staged a sharp rally. The Dow jumped 3.4% or 779 points to close above 23,000 for the first time since March 13. The S&P 500 also surged 3.4% and closed at 2,749.98.

But the moment of truth may emerge next Tuesday when first quarter earnings season kicks off with bank results.

According to Refinitiv, Wall Street analysts expect Q1 earnings growth to fall by almost 8% and Q2 to drop by 18%. 

“We did cut our earnings a while ago. We do think earnings season is going to be difficult,” said Harvey. “What we expect is a very deep, deep ‘V’ in regards to earnings growth. We think numbers are going to come down dramatically in a very short period of time.”

Despite the bearish view, Harvey hasn’t been sitting on the sidelines. He told CNBC’s “Fast Money” in early March that he was putting money to work despite the market’s unsettling wild swings.

His view hasn’t changed.

‘A significant amount of value’

“We’re finding opportunities across the board,” added Harvey. “Destruction in stock prices has really uncovered a significant amount of value.”

Harvey is targeting companies with solid longer-term growth stories and clean balance sheets. He lists REITs, semiconductors and industrials as groups on his shopping list. 

He emphasizes the importance of going for high quality names. Harvey warns against buying companies with fundamental issues — otherwise known as the “dash for trash.” 

Among Harvey’s groups to avoid: Travel and leisure, particularly the cruise lines. Names such as Royal Caribbean, which has been directly hit by the coronavirus pandemic, have been issuing earnings warnings since winter.

“We’re not telling people to light their hair on fire,” Harvey said. “What we’re telling people to do is really look for your best risk rewards because we’re still facing a difficult cycle. We are still at the beginning of a recession.”

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