Optimism: Morgan Stanley sees parallels to 2009 – is the next mega bull market coming? | message

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— Morgan Stanley sees similarities to March 2009
Is the stock market starting a new bull market?
Financial stocks with a lot of potential

“The markets are currently replicating the period of the major financial crisis in many ways,” wrote Michael Stanley, Morgan Stanley’s chief equity strategist, according to MarketWatch, in a statement to US investment bank clients. There are currently striking parallels in the US stock market with March 2009, when the economy came out of the crisis and the S&P 500 started its record bull market.

Equities topped 200-day moving averages

One of the similarities that the stock market expert sees is the growing number of companies whose stock price exceeds their 200-day moving average. These are mainly cyclical stocks with a small market capitalization, which usually also lead to a recovery.

High risk premium for stocks

In addition, the risk premium for S&P 500 shares reached approximately the same level in March 2020 as in March 2009. This risk premium is calculated from the expected return on shares less the return on ten-year US government bonds. In this way, investors can roughly estimate how much more they could make if they invest in the riskier stocks rather than in safe government bonds.

“If we have learned one thing in the past ten years, it is necessary to access a risk premium before it disappears,” Wilson said. This is because the risk premium will decrease again as soon as the bond prices fall and in return the yields on the bonds rise, or if the share prices rise and thus reduce the return on shares.

Good chances for financial stocks

Finally, the equity strategist stated that he was optimistic about the prospects for stocks in the financial sector. Recently, these would have been poorly developed and in relation to the S&P 500 would have performed worse than during the financial crisis triggered by the banks. This is due to the recent rate cuts that the US Federal Reserve used to respond to the corona crisis, because it would ultimately narrow banks’ profit margins when they lend, Wilson said.

However, Morgan Stanley’s stock analyst believes that the markets are currently underestimating the chance that long-term bond yields could increase significantly once the economy and the Fed and government relief efforts recover from Corona effects. And with that, they would also underestimate the chance of a huge rally in financial sector stocks.

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