Why the market may be one headline away from another ugly sell-off

Finance news

A top market strategist has a message for investors: Don’t get too comfortable with the latest market rally.

As long as trade jitters are present, Wells Fargo Investment Institute’s Scott Wren believes stocks are vulnerable to another ugly drop.

“You’re going to be susceptible to the headline of the day,” the firm’s senior global equity strategist told CNBC’s “Trading Nation ” on Wednesday. “You get a bad trade headline tomorrow and we’re probably going the opposite direction.”

The Dow has rallied more than 700 points in the last two trading sessions, and Thursday’s futures action was pointing higher. The rally’s catalyst has been on increased hopes of a Federal Reserve interest rate cut.

But it’s a misguided expectation, according to Wren.

“What Jay Powell was trying to do [Tuesday] is just reassure global investors that ‘hey, we’ve got your back if the situation deteriorates’,” Wren said. “It was reassurance. It wasn’t any kind of a guarantee that the Fed is going to do anything with rates at all.”

Despite his cautiousness, Wren sees a U.S.-China trade deal ultimately getting done this year, and the economic expansion getting back on track. In return, the Fed would have little reason to justify a rate cut.

“What we need again at this part of the cycle is just some stabilization in global growth,” he added.

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Wren predicts the Fed will remain on pause for the next two years. He expects the S&P 500 to stabilize and end 2019 at record levels.

His year-end price target is 2,900 to 3,000. On Wednesday, the index closed at 2,826.

And, he contends Wall Street doesn’t even need a comprehensive trade resolution to get there.

“You need some kind of deal. It doesn’t have to be the perfect deal,” Wren said. “It just needs to be some kind of deal that takes off the tariffs and promises not to add new tariffs.”

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