Markets flat as investors focus on states' plans to reopen

Yahoo Finance’s Brian Sozzi and Heidi Chung analyze the stock market with Wells Fargo Head of Equity Strategy Chris Harvey.

Video Transcript

BRIAN SOZZI: Now let's take a closer look at the markets with Chris Harvey, Head of Equity Strategy at Wells Fargo. Chris, good to see you.

We're awaiting testimony from Dr. Anthony Fauci on the Trump administration's response to the coronavirus. Do you think this testimony is a potential point where investors reassess how optimistic they have gotten on the markets where one word from Dr. Fauci could send stocks down?

CHRIS HARVEY: So I think clients-- I think investors are reassessing every day. And if he does say something outstanding or unusual, I think markets will react, but I don't think he'll go off script. I think he's been very consistent, and he'll follow that script, saying that we don't need to open too quickly, that we still need to do social distancing, that we're getting in front of this slowly but this is a long and arduous process.

HEIDI CHUNG: Hey, Chris. So we've had a lot of strategists on our programming over recent weeks talking about how perhaps this market may have run a little too far, too fast. I want to get your opinion on that front. Do you think there's more room to run here? Are we due for a pullback?

CHRIS HARVEY: We do think there's a little bit more room to run. So at the turn we've been a little bit positive. We came into this year more conservative. But below 2,500, we were telling clients to put money to work.

And what we see that's positive is things are getting less bad. It's not that things are good, but they're getting less bad. As we go through earnings season, we're hearing that from the credit-card companies. We're hearing that from some of the industrials. And, in some cases, things are actually good on the tech side.

So we think 3,000 is the upper end of our short-term range. We still think there's some upside. But again, at any point in time we could have a pullback, but we think the pullbacks will be more shadow.

INES FERRE: And, Chris, Ines Ferre here. We have been trading sideways over the last couple of weeks. We have not gotten a lot of guidance from companies. Are the markets waiting to see what happens in Q3, Q4, especially what happens with the economies as they reopen?

CHRIS HARVEY: Yeah, so I think you hit it on the head. Ever there's a time-- you've probably heard this word before. I'm not the first one to use it. There's a ton of uncertainty at this point in time-- economic uncertainty, COVID-19 uncertainty, job uncertainty, and so we're all processing that. We're taking it in.

One of the positive things that we've seen today is that a key facility, the credit facility that the Fed put out or announced back in March, is now starting to be executed today or is capable of being executed today, and it will continue in steps.

So we're seeing some small positive signs, but you're right. The market's taking it in. It's adjusting. We have run very quickly in a short period time. It's taken a lot of people off guard. But we think there's still positive signs in the second half of this year. We are more constructive.

BRIAN SOZZI: Chris, do you just think the market has gotten short-term overvalued? Look, you have Dr. Fauci getting ready to testify here. One word could send the market down.

And here's a crazy stat that I pulled out this morning. 55% of the S&P 500's market cap is now related to the NASDAQ, so those big-cap tech stocks. Do you think we're due for a breather as we look towards June?

CHRIS HARVEY: So if you look at growth stocks, if you look at tech stocks, they are up year to date. But the good thing is you have some positive underlying fundamentals. What COVID-19 is going to do is many of those secular trends that were benefiting the tech space are accelerating, right? Now people are used to shopping online. Like my kids are doing classes online. What you're beginning to see is an acceleration of cloud-- another acceleration of cloud, of data centers, of industrial warehouses, and that's been driving the tech space.

Again, can we see a pullback? It would not surprise me, but there's nothing-- any sort of pullback, I think, as we look forward will be much more shallow. When we look at the credit markets, when we look at the risk markets, they are starting to become better behaved, and what the Fed did was very-- I think very successful at getting the machine to work. So I think the worst is behind us.

HEIDI CHUNG: Chris, we had President Donald Trump again taking to Twitter talking about energy and oil, saying that our great energy companies look like they're looking good again. What are your thoughts on that sector? because a lot of people have been saying that it's a value trap, if anything.

CHRIS HARVEY: Right. So the first thing I would say is when you go negative, I don't think you can go much worse with regard to pricing. The second thing I would say is if you think about sentiment in this space, I don't think sentiment-- if you said sentiment was bad, that would be an upgrade of where sentiment is at this point in time.

We do find value in this space, and the question is can you exploit it? We think there is some small opportunities, and one of our mantras and one of the things that we've been talking about for the first time in a long time is we want investors to start picking up those value stocks, start picking up the more contrarian stocks, and start buying value opportunistically.

BRIAN SOZZI: Chris, are you getting any questions related to the election?

CHRIS HARVEY: You know, that's the first time somebody's asked me about the election in about two, probably three months, so the answer would be no. I have not heard much in the regard of election, election process. But when people do mention anything about Trump and Biden, it seems like the consensus is more that Trump will be elected and Biden's voice has faded a lot, for various reasons, some of which are quite obvious.

BRIAN SOZZI: All right, let's leave it there. Chris Harvey, head of equity strategy at Wells Fargo, good to see you again, and I suspect you'll be getting a lot more questions on the election very, very soon.

CHRIS HARVEY: Thank you.