According to Morgan Stanley strategists led by Michael Wilson, one explanation is that a “sell-the-news” mentality has taken hold in the wake of second-quarter earnings, potentially dampening price growth.
It is “very challenging for us to be bullish on the (S&P 500) index.”
Investors have been alarmed by a recent rise in bond yields, which has caused the index to decline more than 5% from this year’s highs reached last month. The benchmark 10-year U.S. Treasury’s yield is at its highest point since last October. [US/]
Although the current market action has restricted downside, Wilson said it is a change and implies equities may be beginning to doubt the sustainability of the economic resilience we saw in the first half of the year.
“As a side note, outside of a few areas, the earnings results have not kept pace with the economy this year.”
Wilson believes that the consumer surplus in savings is also shrinking, making consumer discretionary stocks vulnerable.
Despite a sizable dip in recent sessions, the S&P consumer discretionary index, one of the best performing sub-indices this year, is up 28% year to date.
By January or February of the following year, people will probably have spent all of their COVID-19 pandemic savings, according to Barclays.
However, “we assume… that households will gradually return to their pre-pandemic spending patterns,” stated a team of economists from Barclays led by Marc Giannoni.
Furthermore, Credit Suisse has called attention to some external shocks, such those involving China’s real estate market, that pose difficult-to-quantify downside risks.
(Editing by Saumyadeb Chakrabarty; reporting by Susan Mathew from Bengaluru)