Christopher Harvey of Wells Fargo Securities believes that the market is underestimating a big risk – and it’s not the coronavirus.
According to the company’s head of stock strategy, a presidential victory for Joe Biden could throw Wall Street a curved ball and hamper the recovery.
“We don’t think the price is fully on the market right now,” he told CNBC “Trading Nation” on Friday.
The concern: a Biden victory could result in changes to the tax code, which would be negative for the shares.
“Biden is moving up the polls,” noted Harvey. “What does this mean for taxes? Can they [Democrats] win? Not only the White House, but can they also win the Senate?
His warning comes when investors try to assess the risks of a virus outbreak in several states. Harvey is watching the infection rate, but remains optimistic.
“Every day we receive new headlines from Covid. They are not great, but they are still well within the scope of what we expect, ”said Harvey.
It maintains its year-end price target for the S&P 500 or 3,388, which reflects a 13% increase from current levels.
Despite his long-term stock argument, Harvey warns that the market is vulnerable to a 5% to 10% retraction from current levels.
“We have been cautious in the market for a few weeks,” he said. “We went a little too far, too fast. And now we just need a healthy fix.”
It may already be in progress. The major indices have just seen their second weekly decline in three weeks, and Harvey is advising investors to use the weakness to their advantage.
“Start adding value stocks [and] some small cap stocks,” said Harvey. “Start looking for places where the chart looks bad – and that means finance, credit card companies.”