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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: Have the euro zone countries taken significant steps this past weekend to begin to solve their sovereign debt problems?

Scott Wren: It's still going to take years to work through. Globally, the level of debt out there is huge, and it's having its effect on growth and will continue to have an effect on growth. But I think they've "Band-Aided" it. However, I think Greece will default on whatever debt they have left, and there still will be high rates of interest for Spain and Italy to sell their bonds in the market.

The things that have taken place so far are just kicking the can down the road again. Two years ago my theory was that within the next five years there would be fewer countries using the euro, and I stand by that. I think the big ones, the main euro zone members, will still be there for a long time.

H.L.: On Friday, stocks surged on news of euro zone progress. Then they fell on Monday's manufacturing data. What's ahead for stocks?

S.W.: I think in the U.S. we're trapped in a range in the S&P 500 between a high of 1,425 and a low around 1,265. Our target for year-end is 1,400 to 1,450. I think we'll be volatile within this range. I also think we've seen at least half the gains that we're going to see on the year, with a little bit more to go on the upside. But it's likely that you'll have an opportunity to buy stocks lower than where they are. But we're not expecting any big sell-off. Unless there's a big event, like a big European bank failure or an event in the Middle East that drives oil prices up to $150 or so, I think we've seen the market low for the year.

Domestically, I'm optimistic that we're on a modest growth and modest inflation environment, largely due to the amount of government and individual debt. That debt puts a lid on growth for an extended period of time. Stocks can do OK in that environment. They're unlikely to surge higher, but they're likely to grind higher. So I'm optimistic that stocks will be higher in one year and also in two years.

H.L.: What kinds of stocks look good and what don't?

S.W.: What we want our clients to do is to look ahead over the next 12 to 24 months and get their portfolios prepared for the second leg up in this cyclical bull market. So we want them buying stocks that are sensitive to a continuation of the recovery in the U.S. and globally. We want them taking advantage of the sell-off in the materials sector. We like technology. We like the consumer discretionary sector. We're not overweight industrials, but given the sell-off we've seen in a lot of those stocks there are some opportunities there. Basically, we're looking for stocks that will benefit from a continuation of economic growth.

There's probably going to be only a moderate recession in Europe. Chinese growth is probably at the bottom of what we're going to see. I think our economic growth will continue to be modest, and that means not hiding in defensive sectors like healthcare, utilities, and consumer staples. We don't want to be overweight in those sectors.

H.L.: What effect will the Supreme Court's approval of the healthcare law have on the U.S. economy?

S.W.: I think it's still uncertain. I don't think the ruling gave businesses any clarity on one of the key things they're thinking about, that is, how much it will cost to hire a new employee, and if anything they'll think it will cost them more. It hurts the employment situation. It hurts confidence. Business confidence and consumer confidence are key here. They're better than they were a year or two ago. But they're still not at good levels. Over time the employment situation will continue to improve. I still think the unemployment rate will be around 8 percent at the end of this year.

H.L.: What's your prediction for the U.S. economy for this year and 2013?

S.W.: Officially, we think 2.5 percent growth this year, and for 2013 it should be very similar, so it will be below trend this year and next year.

H.L.: What will happen as we approach the "fiscal cliff," the year-end trillion-dollar defense and social program spending cuts and expiration of the Bush tax cuts?

S.W.: It's likely Congress won't deal with those issues until after the election. I'm very confident we'll kick that can down the road for six months or a year. The new guys will come in January and extend everything retroactively back to Jan. 1. Politicians don't like to make hard decisions so they'll temporarily postpone those decisions and do it numerous times.

H.L.: Is the U.S. housing market near a rebound?

S.W.: "Rebound" is too strong of a world. What we've got is stabilization. But it worries me that we have a lot of existing home inventory that's not on the market yet. That will keep a lid on pricing for several years. I don't see a big rebound in real estate any time soon. Credit is still tough to get for those people who really need it. There will be a lot of homes for sale as more of the foreclosures come through.

Over the course of the next five years I think real estate could rebound a bit but not like in the middle of 2006 when the median existing price was hitting a high, a touch over $230,000 nationally. Every spring the price rebounds a little and then falls off. Early this year we hit a new low, around $155,000, so we're not far off the low price. I've read that in certain parts of the country there may be bidding wars, but that's not happening in St. Louis. I can tell you that.

H.L.: What has you worried overall?

S.W.: The stuff that keeps me up at night is housing and labor markets. I'm worried that we're stuck structurally at a high level of unemployment. The European debt crisis also worries me.

Source: Interview With Scott Wren: Eurozone Will Survive With Fewer Members