Morgan Stanley and Goldman see more losses in US stocks
While this year’s drop has left prices more fair, the S&P 500 still needs to drop another 15% to 20% to around 3,000 points for the market to fully reflect an economic contraction.
US stocks have not yet fully priced in the risk of a recession and may have to fall further, according to strategists at Morgan Stanley and Goldman Sachs.
While this year’s slump has left prices more fair, the S&P 500 still needs to drop another 15% to 20% to around 3,000 points for the market to fully reflect an economic contraction, Morgan Stanley strategists led by Michael Wilson said in a note. .
“The bear market will not end until the recession hits or that risk is extinguished,” they said. The indicator last week saw a drop of more than 20% from its peak in January, which characterizes a bear market.
Goldman strategists said stocks are pricing in only a mild recession, “leaving them exposed to a further deterioration in expectations.” Berenberg strategists also said on Tuesday it was too early to declare bottoming out, with the downgrade of earnings forecasts just beginning amid expectations of a recession.
Investor sentiment on risky assets has soured in recent weeks after runaway inflation and a more aggressive Federal Reserve raised the risk of a prolonged economic contraction.
Wilson, one of Wall Street’s most prominent bears, who correctly predicted the latest market selloff, said that if a full-blown recession becomes the market’s base case, the S&P 500 could come close to 2,900 points – more than 21% down. of the last closing.
Goldman strategists led by Peter Oppenheimer said they view the current bear market as cyclical, with stronger private sector balance sheets and negative real interest rates dampening the systemic risks associated with structural bear markets.