Renowned "Big Short" warns: US stocks may face a double blow
Renowned "Big Short" warns: US stocks may face a double blow. Morgan Stanley strategist Michael Wilson stated that the dual impact of increased economic uncertainty and soft corporate profit forecasts may limit the stock market's upside. Wilson expects the S&P 500 index to fluctuate between 5000 and 5400 points, as macroeconomic data has not provided clear growth signals in the short term. Furthermore, analysts anticipate that the number of downward revisions to profit expectations will exceed the number of upward revisions, intensifying concerns about profit margin resilience. JPMorgan Chase's strategist team also indicated that they foresee a mixed outlook for the stock market in the coming months
Morgan Stanley strategist Michael Wilson stated that increased economic uncertainty and soft corporate profit forecasts could limit the stock market's gains.
The strategist expects the S&P 500 Index (SPX) to fluctuate between 5000 and 5400 points, as short-term macroeconomic data has not provided clear growth signals. The upper limit of this range implies a mere 1% increase from the current level for the S&P 500 Index, while the lower limit suggests a 6.4% decline. Wilson has been one of the most famous bearish voices in the U.S. stock market until last year.
Furthermore, Wilson wrote in a report that due to seasonal weakness, analysts are expected to lower profit expectations more than they raise them, "which is also one of the reasons why the third quarter is usually the most challenging."
Over the past month, U.S. stock investors have been volatile due to concerns that the Federal Reserve may not cut interest rates in time to prevent an economic downturn. Although the S&P 500 Index has recovered most of last week's losses, it is still nearly 6% below the record high set in mid-July. Market focus is now turning to Wednesday's key consumer price report.
Despite optimistic second-quarter earnings season performance, growth concerns have dampened market sentiment. S&P 500 Index component companies are expected to achieve a 13% profit growth, the strongest since 2021. However, the proportion of companies exceeding sales expectations is the lowest since 2019, exacerbating concerns about profit margin resilience.
In the report, Wilson stated that while the bond market has adjusted to reflect the risk of the Federal Reserve being "behind the curve," stock market valuations have not fully priced in this risk. The strategist reiterated his preference for so-called defensive stocks, which have robust earnings prospects and strong balance sheets.
As one of the few voices consistently bearish on the stock market this year, Morgan Stanley's strategist team also stated that they expect the stock market outlook to be mixed in the coming months.
Led by Mislav Matejka, the team wrote in a report: "The Federal Reserve will start cutting rates, but this may not drive sustained stock market gains, as these rate cuts may be seen as reactive and lagging behind changes in the economic situation."