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Wall Street is underpricing a Joe Biden presidential win, Wells Fargo's Chris Harvey warns

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This growing political risk may hurt stocks

Wells Fargo Securities' Christopher Harvey believes the market is underestimating a major risk — and it's not the coronavirus.

According to the firm's head of equity strategy, a Joe Biden presidential win could throw Wall Street a curve ball and hurt the recovery.

"We just don't think it's fully priced into the market place at this point," he told CNBC's "Trading Nation" on Friday. 

The concern: A Biden win could result in changes to the tax code which would be a negative for stocks.

"Biden is moving up in the polls," noted Harvey. "What does that mean for taxes? Can they [Democrats] win? Not just the White house, but can they win the Senate, as well?"

His warning comes as investors try to gauge risks from a virus surge in several states. Harvey is watching the infection rate, but he remains an optimist.

"Every day we get new Covid headlines. They're not great, but they're still well within the realm of possibilities of what we expect," said Harvey. 

He's maintaining his S&P 500 year-end price target or 3,388, which reflects about a 13% increase from current levels.

Despite his long-term bull case for stocks, Harvey warns the market is vulnerable to 5% to 10% pullback from current levels.

"We've been cautious on the market for a few weeks now," he said. "We've gone a little bit too far, too fast. And, now we just need a healthy correction."

It may already be underway. The major indexes just saw their second weekly drop in three weeks, and Harvey is advising investors to use weakness to their advantage.

"Start adding value stocks [and] some small cap stocks," Harvey said. "Start to look at places where the chart looks bad —and that means financials, your credit card companies." 

Disclaimer

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From the pandemic to politics, Wells Fargo's Chris Harvey sees near-term trouble