(Bloomberg) - The upcoming earning season may be the first of several difficult quarters as the possibility of a recession looks more certain, according to Chris Harvey, head of equity strategy at Wells Fargo.
“We have been seeing for a number of quarters, margins starting to compress, and we think this is where it comes to roost,” Harvey said on Bloomberg TV. “This is the period where if you can’t make numbers, if margins get compressed, this is where you get penalized, and this is the first of what may be several very difficult earnings seasons.”
Harvey said the Federal Reserve and US Treasury had helped backstop some of the fallout from turmoil in the banking sector after the failure of three US regional banks, but that access to capital “will be a little bit more difficult to come by in the second half of the year,” which is “going to have economic effects.”
“We think we’re going into a slowing economic environment, where credit is going to be more difficult to fund, and we’re late in the cycle,” he said.
Typically the period just before a recession can be challenging, where neither the Fed nor the economy is able to bail out underperforming companies, Harvey said.
However, a cut in interest rates from the Federal Reserve could usher in a good environment for growth, he added. He has a price target on the S&P 500 at $4,200, which is about 2% higher than current levels, favoring companies with strong balance sheets.
By Carly Wanna
With assistance from Lisa Abramowicz
