Investors may be let down if they were expecting a significant rise to close the year following a period of poor market performance.
Mike Wilson of Morgan Stanley believes that the market is unlikely to recoup its summertime gains. The bank’s top equity strategist wrote a letter to clients expressing his belief that the S&P 500 would likely complete the year around his long-term objective of 3900, which is roughly 6% below Monday’s closing of 4,166.82.
Wilson gave two reasons for his pessimistic prediction.
First, despite solid statistics, the macro picture is deteriorating.
“The strength in the headline labour data masks the headwinds faced by the average company and household that the Fed can’t address proactively,” Wilson stated.
This month’s robust GDP growth and employment statistics in the US have covered up the hardships faced by the typical US home and business. The resumption of student loan repayments, rising borrowing prices, and an increase in loan delinquencies are creating divergent views about the direction of the economy.
Wilson’s second argument is that several of the largest stocks are falling following subpar earnings, which means that the S&P 500’s super-fuel is running out. Furthermore, Wilson points out that shares of companies despite reporting respectable performance are declining thereafter.
Bears contend that the “Magnificent Seven” stocks are largely to blame for the market’s rally this year. When they are removed, the S&P 500 seems much different. As the market nears year-end, the benchmark index may find it difficult to gather steam because the S&P 500 is supported by just seven businesses, several of which have fallen since their results announcement.
As we’ve mentioned, uncertainty is more than usual during late cycle phases. Therefore, investor sentiment on the fundamentals, and consequently, confidence and positioning, is frequently determined by price momentum.”