Source: Zhitong Finance
Morgan Stanley strategist Mike Wilson said stocks appear to have embarked on another substantial bear market rally as valuations become more attractive, equity markets are oversold, and interest rates are likely to stabilize below 3%.
Wilson wrote in a note on Sunday: “After that, we mainly believe that the stock market will still fall ahead. Looking at the S&P 500, we think the level is close to 3,400, which is supported by valuations and technicals. position.” He said the bear market will continue until valuations drop to 14-15 times.
Wilson said: “First, while most companies handily beat consensus EPS estimates, performance standards were cut more than ever this quarter. Second, the ratio of negative earnings expectations to positive earnings expectations rose sharply. Third , earnings quality has deteriorated as incremental operating margins roll over for many companies and sectors, including many important large tech stocks. Finally, the S&P 500’s second-quarter expectations are down, while full-year expectations are unchanged. That’s actually Raised the bar for the second half of the year, when the economy will feel the impact of higher interest rates and other headwinds.”
On equity risk premiums, Wilson said: “The risk premium will be 300 basis points, well below our year-end target of 340 basis points and underestimating future earnings risk.”
“The question is, will the stock market accept the profit cuts we think are coming, or will companies be required to formally cut guidance? Given the prevailing bearish sentiment and extreme oversold conditions right now, we may see it take any One way to come.” In addition, Goldman said a recession would push the S&P 500 to 3,600.
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