The biggest bulls in the market predict that the S&P 500 will rise another 7%, but he warns that popular trade will not be there.
Chris Harvey of Wells Fargo Securities recently demoted the software to neutral and declared it a crowdfunding transaction. They made decisions based on technical fundamentals and high earnings and valuations.
“From a valuation standpoint, you pay a premium of around 75% to the software market and it’s very rich,” the company’s head of equity strategy told CNBC’s Trading Nation on Friday.
The Dow Jones US Software Index is up 28% in the past five months.
“It’s a work from home job,” Harvey said. “We think there aren’t a lot of short-term opportunities.
They think the opposite is true for media and entertainment.
“When we downgraded the software, we upgraded the media and the entertainment,” Harvey said. “If we look at the media and entertainment space, you see a better upward revision, better growth opportunities. But you only pay a 15% premium.
They upgraded their media and entertainment group’s rating from neutral to overweight and ranked it as their best game on the market.
“There is a lot of money to spend there. There are still a lot of stalled requests, ”he said. “The media and entertainment sector offers a better opportunity to capitalize on this reopening drama.
Not only does he see fundamentals and sentiment improving, but Harvey says advertising is making a comeback in a diverse group, which includes everything from cable companies and big names in tech.
The S&P 500 Media & Entertainment Index is up 4% over the past month and 34% so far this year.
“We want to be more aggressive”
“Opportunities are still plentiful, and we want to be more aggressive in this cyclical trading,” said Harvey.
On Tuesday, Harvey raised his S&P 500 year-end price target from 3,850 to 4,825, a high on Wall Street. Despite rising slightly in the last four months of the year, it gave a less optimistic outlook for 2022 – a target of 4,715. Harvey believes some kind of hangover will occur after a record year.
But for now, he’s firmly in the risk camp.
“We want more cyclical risk,” Harvey said. “We want more exposure to high Covid-beta games because we believe the economy will grow.”
The tech-rich S&P 500 and Nasdaq closed at historic highs on Friday. The S&P 500 closed above 4,500 for the first time. Meanwhile, the Dow Jones is about half a percentage point off its all-time high.