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Scott L. Wren is a senior equity strategist with Wells Fargo Advisors. Previously he was Senior Equity Strategist with A.G Edwards.

Harlan Levy: What's the status of the economy in light of the latest data?

Scott Wren: Despite the slight contraction in Gross Domestic Product in the fourth quarter economic growth should slightly improve in 2013 versus 2012 to about a 2.5 percent growth rate. We're still in a modest growth/modest-inflation environment, and stocks can be OK in that kind of scenario.

H.L.: Is the stock market headed for a pullback, and if so how much of one?

S.W.: I'd love to see a pullback right now, because a pullback is an opportunity to buy just like in 2012. But I'm having a more difficult time trying to gauge when a pullback is going to occur. I feel certain that at some point in the year we will be able to buy stocks at lower levels than today's, but I'm having trouble figuring out when that
will occur.

There are a couple of reasons for that. One is that more and more people are waiting for a pullback. The media is starting to talk about that, plus I think you're starting to see a small amount of chasing, where there are some investors, not a lot, who are worried about missing some upside. So you're starting to see a little money coming
in, chasing the market higher a little bit. Normally, when there are a lot of people waiting for a pullback, that means the market will likely trade higher in the near term. I'm generally a believer that the market usually embarks on a path that confounds most people. If everybody is waiting for a pullback, the market is likely to trend higher. The couple of down days that we've had recently have had no follow-through, and we typically finish the day well off the lows and maybe a bit positive. My sense is that, given all that, we're likely in the near term to trade a little higher. I'm hoping that some of the debate and negotiations around the automatic spending cuts due to kick in March 1, will possibly spook the market a little and present an opportunity to do some buying.

But I think the market's pretty convinced that in the near term we're not likely to see any real meaningful spending cuts. And the $1.2 trillion in spending cuts over 10 years [the "sequester"] are just a drop in the bucket. That's not even that meaningful. The amount in 10 years needs to be far in excess of what the automatic spending cuts represent.

The economy has become addicted to government deficit spending, and we're going to need to wean ourselves off that over time. I don't think the politicians are going to be able to make the tough decisions, so it's good that we have some spending cuts that are scheduled. If they do go through I don't think that's the end of the world, even if the market gets spooked by that.

H.L.: What do you think will happen in the upcoming battle over the fights over the debt ceiling increase and authorization of continuing government spending?

S.W.: I think the debt ceiling will continue to be raised. I don't think we're going to see much of a fight there, and it looks as if the politicians will continue to pass temporary resolutions to continue funding government day-to-day operations. There will be some debate, but the March 1 date when the sequester goes into effect - I don't want that to be delayed because I want a little uncertainty to be injected into the market so it will give us an opportunity to buy, and I don't think the Republicans are keen on postponing those automatic spending cuts. That's what they're saying now.

H.L.: So what's your prediction for the U.S. economy for the rest of 2013 and 2014?

S.W.: Our GDP projection is for 2.5 percent growth, and to look ahead to 2014, I expect it will be approximately the same. I just don't think this year or next year will see growth above trend. I just continue to think we're in the last half of a cycle where it would be unusual for growth to accelerate significantly.

H.L.: Is the U.S. housing market recovery sustainable?

S.W.: I think it's being hyped a bit in the media. I think that housing is likely to improve slowly. According to the CoreLogic research firm there are still nearly 11 million homeowners under water on their mortgages. There's improvement, but there's a long way to go. I don't think you're going to see a surge in prices. It's more like a
stabilization and slow improvement, and it will be uneven across the country. Right now the biggest price gains are in the areas hit the hardest. It will be a multi-year slow recovery.

H.L.: When do you think job creation will increase over the current low levels?

S.W.: I don't think it's going to happen over the next couple of years. It's likely to stay at a very low pace. I think you'll see unemployment in the 7.5 percent level by the end of the year, down from 7.9 now. It's going to take a few years to get back anywhere close to 6 percent.

H.L.: What's the most unexpected event that could happen?

S.W.: An unexpected event this year would be for Congress to adopt something similar to the Simpson-Bowles plan to address the long-term spending problem. To actually to do more than talking would be totally unexpected.

Also something surprising would be China bouncing back quicker than most people expect. That would be a boost. A bounce-back in Europe when you would actually get 1 percent or greater growth could happen, although it's unlikely. That would be a positive surprise for the market. If both of those things happen, we would need to adjust upward our earnings estimate, which is $108 on the S&P 500 and adjust upward our year-end target for the S&P 500, which is currently 1,525 to 1,575.

Source: Interview With Scott Wren: About 2.5% Growth In 2013 And 2014; No Stock Pullback In The Near-Term