Wells Fargo’s Paul Christopher said stocks could go downhill from here, as he warned investors against chasing the current rally. Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, said he doesn’t believe the Fed will cut rates, or even keep them on hold. “Markets have been trying to convince themselves that rates are going to come down, that the Fed and central banks around the world are not going to raise rates like they are doing now,” he told CNBC’s “Squawk Box Asia” on Thursday. “Even if the Fed is on hold next week, we won’t Think the Fed will be on hold for a long time – inflation is too sticky.” Christopher added that he did not believe the Fed would cut rates this year. The next meeting of the central bank will be held on June 13 and 14. The strategist also highlighted some persistent problems in the economy: Bad borrowing is rising, inventory levels remain too high in some areas and tumbling earnings are fully priced in in most cyclical sectors. Tighter credit conditions following the banking crisis also contributed to the slowdown in lending activity, he added. “There may be more downside risk to stocks at this point (aka, don’t chase stock market rallies),” he wrote in a note to CNBC. “In our view, the market is overly complacent.” Christopher said history shows that the standard On average, the S&P 500 does not bottom out until six months after the Fed’s first rate cut. U.S. stock indexes are up this year, with the S&P 500 hitting a new 2023 high on Thursday. It has risen nearly 13% so far this year, while the tech-heavy Nasdaq has soared 27%. However, the rally was concentrated in a tight range, with gains driven by only a few major tech stocks. Christopher noted “really strong buying” in artificial intelligence and tech-related stocks, but said that when the Fed continues to raise rates, it will be bad news for these stocks. “So what happens when we raise rates again? … What happens when the Treasury starts removing liquidity? Replenish their coffers by issuing a lot of new T-bills,” he told CNBC. “Rising interest rates, especially long-term rates, combined with liquidity leaving the market, will take a lot less speculative energy out of the very few stocks that come out in this space.” Lower interest rates tend to favor growth stocks like technology because they rely on Borrow large amounts of money to fuel future growth and are considered long-term assets. The higher the interest rate, the lower the present value of their future earnings stream. “The ones that are really enjoying the low rates are those tech stocks or the established companies that want long-term exposure and all this liquidity, and we think that’s coming to an end,” Christopher said. Stay defensive on the earnings side. He urged them to cash in on tech before investing in industries like health care and energy. “Recently, we have taken further defensive steps, notably to reduce overall portfolio risk by reallocating some capital from U.S. equities to (short-term) fixed income and (developed market) equities,” he said.