Wall Street's two major short sellers issue a joint warning: If corporate profits are poor, the rise of US stocks will come to an end
The two most pessimistic strategists on Wall Street have warned that if corporate earnings disappoint, the rebound that has driven the U.S. stock market to new highs this year will stall. Despite the S&P 500 repeatedly hitting new records, profit prospects have been weakening, causing increasing concerns for both Morgan Stanley and JP Morgan. Michael Wilson of Morgan Stanley stated that the stock market's rise over the past five months has been driven by looser financial conditions and higher valuations, rather than fundamental improvements. Mislav Matejka of JP Morgan is also worried about the disconnect between earnings expectations and stock prices
According to the Zhitong Finance and Economics APP, the two most pessimistic strategists on Wall Street stated that if corporate earnings disappoint, the rebound that drove the U.S. stock market to set new records this year will stall.
Despite the S&P 500 index repeatedly hitting new highs, profit prospects have been weakening, causing increasing concerns for both Morgan Stanley and J.P. Morgan. Michael Wilson of Morgan Stanley stated that the stock market's rise over the past five months has been driven by looser financial conditions and higher valuations, rather than fundamental improvements.
A team led by Wilson wrote in a report: "Further expansion of U.S. stock market valuations may depend on rising earnings expectations. Considering that earnings forecasts for 2024 and 2025 have hardly changed during this period, it is difficult to justify the high valuation levels of the index based solely on fundamentals."
Based on compiled data, profit expectations have been lowered over the past five months, with analysts currently expecting earnings per share to grow by about 9% this year, lower than the 11% expected in early November last year. However, despite the continuous decline in profit expectations, the U.S. stock market has continued to rise due to optimism about potential rate cuts and AI development, and the stronger-than-expected fourth-quarter earnings reports have also been supportive.
Mislav Matejka of J.P. Morgan also expressed concerns about the disconnect between profit expectations and stock prices.
A team led by Matejka wrote in a report: "We are concerned that profit growth may slow down for various reasons. If profit acceleration fails to materialize, this could become a constraining factor."
It is reported that Morgan Stanley and J.P. Morgan are among the most pessimistic major banks on Wall Street. J.P. Morgan expects the S&P 500 index to close at 4200 points by the end of this year, a 20% drop from the recent closing price, while Wilson predicts that the index will fall to 4500 points.
The strategists bearish on the stock market are concerned that the recent gains driven by the "Big Seven" have narrowed. Wilson wrote that the market needs to broaden its scope in order to continue the rebound.
In addition, Lori Calvasina, a capital market strategist at Royal Bank of Canada, pointed out that after reaching new highs, the performance of S&P 500 index constituents has stalled. She wrote: "We still believe that market sentiment is tense and we think the U.S. stock market should have corrected long ago."