Stocks will pull back up to 7% multiple times and election-driven volatility


Paul ChristopherCNBC TV

  • Wells Fargo’s Paul Christopher told Bloomberg he’s expecting volatility in the stock market in the next few months heading into the election.
  • These pullbacks could be up to 7% as turbulence continues into the first quarter of 2021 when an administration’s “decisions and appointments need to be made.”
  • He’s advising his clients to hold cash and put that money to work during the pullbacks. 
  • The strategist said investors are better off staying in growth sectors like information technology, communications services, consumer discretionary, and healthcare over the next few years. 

A Wells Fargo Investment Institute head strategist told Bloomberg that he is expecting stock turbulence and a number of market pullbacks heading into the election and well into the first quarter of 2021. 

“Most of the important decisions and appointments that need to be made in an administration have to occur in that period of the winter time … so we are looking at volatility in the next coming months,” Paul Christopher said.

The head of global market strategy said that market pullbacks of 5-7% may occur several times during this period. He said his clients are holding cash and he’s advising them to “put that money to work during the pullbacks.”

If there’s a pullback in growth stocks and cyclicals begin to gain leadership, he said: “We would be looking to take rotation by pulling profits out of cyclicals and small caps, setting that money aside, and then gradually putting it to work in the next several months.” 

Read more: Bank of America shares a trading strategy designed to boost returns from a ‘potential blow-off’ rally in Apple’s stock as it surges past big-tech peers

But Christopher said that in the continued low-rate environment, it will be “difficult for cyclicals to gain much traction.” 

“Going forward is a business cycle that looks a lot flatter, much less amplitude to it than in the past, and that means that you won’t have so much time to play cyclical moves, ” Christopher said. 

The strategist said investors are better off staying with larger sectors and growth-oriented sectors like information technology, communications services, consumer discretionary, and healthcare over the next few years.

“You’re not going to necessarily just put that money on automatic pilot, there will be times when the market gets overdone. We’ll take some profits when we get to our tops of our target ranges, and then put that money aside and wait for the pullbacks,” said Christopher. “Or if you do see some short-term rotation into cyclicals, that would be an opportunity to take profits there, pull money out.”  



Read More: Stocks will pull back up to 7% multiple times and election-driven volatility

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