He urges investors to take profits in light of the risks associated with rising interest rates.
“The premium you pay is still exceptionally high,” the company’s head of equity strategy told CNBC’s “Trading Nation” on Friday. “We think the premium should be reduced. Second, we believe the next 25 basis point move over the 10 year period [Treasury Note yield] is… above and not below. “
After a surge at the start of the year, the 10-year rate is trending downward. It ended the week at 1.43% on Friday, down almost 17% in the past three months. The decline benefited growth stocks, in particular Big Tech.
But Harvey warns that a major reversal is all but inevitable, citing the underlying economic backdrop. The rate hike will pave the way for a double-digit pullback in dynamic growth stocks. He predicts it could happen later this summer or early fall.
“Tech companies and growth companies that are selling at really high multiples,” he noted. “Even though they have high growth rates, high multiples are what will make them. “
Harvey called the March rebound in Big Tech a “false head” on “Trading Nation” at the end of April. He is sticking to the call and is now reporting more concern with stocks in rally mode.
The tech-rich Nasdaq closed at historic highs on Friday. It closed at 14,639.33, up 121% from the Covid-19 low of March 23, 2020. The S&P 500 and the Dow also closed at new highs.
If the tech top brass are right, Harvey expects the fallout to affect the wider market due to the group’s dominance.
However, he maintains his optimism on the names of the market linked to the economic recovery.
“They’ve managed their earnings expectations pretty well, and they’ve been a lot more conservative than we thought,” Harvey said. “We think this cycle lasts longer than a lot of people expect and a lot of people believe. “
Its main cyclical choices include major central banks, chemical and aerospace companies.
“Many cyclical companies still have a double-digit average single-digit rise from here on a relative and absolute basis,” Harvey added.
Harvey has an S&P 500 year-end price target of 3,850, which implies a 12% drop from Friday’s close.