S&P 500 To Correct 10% In 3-6 Months? Here's What Wells Fargo's Chris Harvey Says

Chris Harvey, head of the equity strategy at Wells Fargo Securities, reportedly expects the S&P 500 to see a 10% correction in the next three to six months, dragged by worsening economic conditions.

What Happened: "In our view, equity downside will be driven by worsening economic conditions, a function of: aggressive monetary policy; potential capital/liquidity issues catalyzed by the bank crisis; and a consumer that is increasingly reliant upon credit to sustain spending," Harvey and his team of strategists wrote in a note to clients Tuesday, according to a Bloomberg report.

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Wells Fargo has maintained its year-end price target of 4,200 for the S&P 500. The index gained over 7% since the beginning of the year. The SPDR S&P 500 ETF Trust SPY closed 0.03% higher while the Invesco QQQ Trust Series 1 QQQ lost 0.64%.

Economic Malaise: Harvey said that the "economic malaise" expected by the firm before the collapse of Silicon Valley Bank has shifted toward an outright recession in the second half of the year.

The yield curve inversion and increasing reliance by consumers on credit have contributed to the bearish reversal in the bank's view on equities, he added.

"If we assume the Fed tightening cycle ended in March (that's still a coin toss), the near-term relief rally appears already reflected in stocks," Harvey wrote.

Market participants are now keenly eyeing the release of the consumer price inflation data on Wednesday that will decide the future course of the central bank's actions.

"Typically, the market continues to rally over a three-month period. However, it may not be a fair comparison because the tightening cycle may not be over and margin compression is expected to outweigh a Fed pivot," he added.

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