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Report market rally will embody media, not software program: Wells Fargo

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August 29, 2021
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The market’s largest bull predicts the S&P 500 will rally one other 7%, however he warns a preferred commerce will not be alongside for the trip.

Wells Fargo Securities’ Chris Harvey not too long ago lower software program to underweight from impartial and declared it a crowded commerce. He based mostly the choice on technicals and earnings fundamentals and excessive valuations.

“From a valuation standpoint, you are paying a couple of 75% premium to the marketplace for software program and that is too wealthy,” the agency’s head of fairness technique instructed CNBC’s “Buying and selling Nation” on Friday.

The Dow Jones US Software program Index is up 28% during the last 5 months.

“It’s a do business from home play,” stated Harvey. “We simply do not suppose there’s an entire lot of alternative within the quick time period.”

He finds the alternative is true for media and leisure.

“After we downgraded software program, we did improve media and leisure,” stated Harvey. “If we take a look at the media and leisure area, you are seeing higher upward revisions, higher development alternatives. However you are solely paying a 15% premium.”

He boosted his media and leisure group ranking to obese from impartial and listed it as his high market play.

“There’s some huge cash to be spent. There’s nonetheless a whole lot of pent-up demand,” he stated. “The media and leisure area provides a a lot better alternative to capitalize on that reopening play.

Not solely does he see sturdy fundamentals and enhancing sentiment, Harvey contends promoting is making a comeback within the various group, which incorporates all the pieces from cable corporations and massive cap tech names.

The S&P 500 Media & Leisure Index is up 4% during the last month and 34% up to now this 12 months.

‘We wish to get extra aggressive’

“Alternatives nonetheless abound, and we wish to get extra aggresssive on that cyclical commerce,” added Harvey.

Final Tuesday, Harvey elevated his S&P 500 year-end worth goal to 4,825 from 3,850, a Wall Road excessive. Regardless of his bullishness for the ultimate 4 months of the 12 months, he gave a much less optimistic outlook for 2022 — delivering a 4,715 goal. Harvey believes a the document 12 months might be adopted by a hangover of types.

However for now, he is firmly within the risk-on camp.

“We wish extra cyclical publicity,” Harvey stated. “We wish extra publicity to what we take into account excessive Covid-beta performs as a result of we do suppose the economic system goes to maneuver ahead.”

On Friday, the S&P 500 and tech-heavy Nasdaq closed at all-time highs. The S&P 500 closed over 4,500 for the primary time. In the meantime, the Dow is a couple of half share level away from its document excessive.

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