The S&P 500 will ‘fall sharply’ and join an ongoing bear market, Morgan Stanley warns
Mon, April 25, 2022, 2:01 PM
Morgan Stanley analysts are warning the S&P 500 is set to “fall sharply” and enter bear-market territory this week as investors grapple with
rising interest rates and slowing global growth.
In a Monday note, the investment bank’s strategists, led by Michael J. Wilson, said that “the S&P 500 appears ready to join the ongoing bear market” ahead of a stacked week of earnings reports from tech companies like
Amazon and
Apple.
“In short, the market has been so picked over at this point, it's not clear where the next rotation lies,” the analysts wrote. “In our experience, when that happens, it usually means the overall index is about to fall sharply, with almost all stocks falling in unison.”
If the analysts are correct and the S&P 500 does enter bear-market territory, it would mean a 20% drop from the index’s early January record close of 4,793.54. That would take the S&P 500 to 3,837.25,
or around 9.5% below its Monday level.
In the past month alone, the S&P 500 has fallen nearly 7% as investors weigh the possibility of a faster pace of interest rate hikes from the Federal Reserve in the coming months.
The Fed already raised rates by a quarter of a percentage point in March, and last week Fed Chair Jerome Powell said that a half a percentage-point hike
could be in the cards in May.
----- Pretty vapid research.
Morgan Stanley said the Fed’s policies likely mean inflation has peaked, but cautioned that may not be the best thing for public companies and economic growth.
“The problem is that falling inflation comes with lower nominal GDP growth and therefore sales and EPS growth too. For many companies it could be particularly painful if those declines in inflation are swift and sharp,” the analysts wrote.
I don't buy this reasoning at all... if inflation were to fall fast the market would go up.
Persistent High Inflation is here to stay. The Fed needs to remodel their goals to 3.3%-4% inflation and deal with it. We can get back to those levels.
