According to Morgan Stanley strategists, the S&P500 index could fall by 26% in the first half of this year, informed Bloomberg. US stocks look too expensive and sales may begin in the coming months, experts believe.
Recent economic data show that the US economy may be able to avoid a recession, said Michael Wilson, chief US equities strategist at Morgan Stanley. But this situation also precludes a reversal of the Federal Reserve’s (Fed) monetary policy, which has been raising rates since last spring. Against this backdrop, the yield of US Treasury bonds rose, and the risk premium in equities fell to its lowest level since 2007.
According to Wilson, the risk premium for US equities has reached a level known as the “death zone.” This makes the reward for risk very low, especially since the Fed is still far from ending monetary tightening, and corporate earnings expectations remain 10% to 20% higher, he said.
Since March last year, the US regulator has raised the discount rate by 450 basis points – from near zero to a range of 4.5-4.75% – in order to combat inflation, which has reached its highest level in more than 40 years. The Fed has slowed down its rate hikes in recent months. The Fed raised rates by 25bp at its most recent meeting, but Chairman Jerome Powell and other regulator officials indicated that further rate hikes are expected.
Po opinion Wilson, the Fed may keep the rate at a restrictive level longer than expected, but this is ignored by the market, which “refuses to accept reality.” Morgan Stanley said that institutional and retail investors in the US stock market are now more optimistic than at any time in the past year. Improvement mood investors to US stocks runs counter to weak economic data and expectations of lower company earnings.
As a result of trading on Friday, February 17, the S & P 500 index closed at 4079 points. Since the beginning of the year, the index has gained more than 6%. The strategist expects that in the next few months, the S&P 500 index could drop by more than a quarter compared to the last close and fall to 3,000 points.
After the collapse in the first half of the year, the stock market is waiting for a recovery, but until the end of the year, according to the expert, the index will not be able to fully win back the losses. Morgan Stanley predicts that the S&P 500 will end 2023 at 3,900, almost 5% below its February 17 close.
