Morgan Stanley analysts warn that the S&P 500 will “fall sharply” this week, turning into a bear market after investors grapple with rising interest rates and slowing global growth.
In a note released Monday, the investment bank’s strategists, led by Michael J. Wilson, announced that “the S&P 500 appears poised to join the ongoing bear market” ahead of weekly earnings reports from tech companies like Amazon and Apple.
Analysts on the current situation, “In short, the market is very held at this point, it is not clear where the next move will be. “In our experience, eclipses like this mean that the overall index is about to drop sharply, and nearly all stocks drop together.”
If analysts are right and the S&P 500 enters bear market territory, it would have lost 20% after the index’s record close of 4,793.54 in early January. This means that the S&P 500 has dropped to 3,837.25, or in other words, about 9.5% below Monday’s level.
The S&P 500 has tumbled around 7% in the past month alone as investors consider the possibility of rapid rate hikes by the Fed in the coming months.
The Fed had already increased interest rates by a quarter point in March. Last week, Fed Chairman Jerome Powell said in a statement that there could be another half-point increase in May.
Morgan Stanley notes that the Fed’s monetary policies likely mean that inflation has peaked. Still, he warns that this summit may not be the best-case scenario for public companies and economic growth.
Stanley analysts said, “Reduced inflation is accompanied by slowing nominal GDP growth and thus lower company sales and earnings per share. “The rapid and sharp declines in inflation can hurt many companies,” he said.
The investment bank’s decline forecast comes after the IMF cut its global economic growth forecasts to 3.6% from January’s 4.4% in January, citing the ongoing Russia-Ukraine war. The World Bank, arguing that higher food and fuel costs will trigger a global economic slowdown, reduced its global growth forecast to 3.2% on April 18, showing that it is more pessimistic than the IMF.
Analysts at Stanley said this week that they have no new ideas for investment, recommending that investors stick with pharmaceutical and biotech companies because of their resilience in the market.
Morgan Stanley is not the first investment bank to call a forward bear market. Deutsche Bank stated in early April that it predicts the US will enter a recession by 2023. Bank of America warned that a “recession shock” could come as the Fed takes action to combat inflation.
Finance.yahoo.com
Translated by Cem Cetinguc
