Morgan Stanley: the stock market is waiting for another bottom by the end of the year
Mike Wilson, chief investment officer of Morgan Stanley (NYSE:MS), said the US stock market will again fall to a low by the end of the year, as investors are too worried about the Fed’s measures and overly optimistic about corporate earnings, writes Business Insider.
Mike Wilson of Morgan Stanley warned that the S&P 500 could fall by either 25% in a recession or 15% if the Fed manages to soft-land the economy, with the market too focused on the central bank’s decision to in relation to the rate and inadequately assesses risks when calculating profits.
Last week, Fed Chairman Jerome Powell’s speech at Jackson Hole riveted all the attention of investors, although according to Wilson, all measures by the US central bank have already been taken into account by the market, and now prices are mainly dependent on risks to growth.
“We assessed most of the Fed’s problems in the first half of the year,” Wilson said, referring to the S&P 500’s worst-ever first half.
What worries the expert is the fact that the equity risk premium, that is, the part of the price-to-earnings ratio that measures market risk expectations for growth, is actually lower than at the beginning of the year, which indicates too high and optimistic market expectations.
Wilson predicts that stock valuations will soon decline over the next 2 quarters, as shrinking earnings and reduced optimism usually lead to a new bottom in the market. The market bottom is likely to occur between September and December, despite the prevailing optimism that stocks will rise after that.
And even if many stocks have already hit an intra-year low in June, this has not yet fully reflected in the stock indexes, which means a new decline in the S&P 500 before the end of the year.
— Materials from Business Insider were used in the preparation