Topline
The S&P 500 could soon test a seven-month high as stocks prove resilient even as earnings disappoint, according to Morgan Stanley’s famously pessimistic lead equity strategist Michael Wilson, though Wilson maintains any gains are little more than a flash in the pan as market conditions will continue to weigh down equity prices.
Bears’ run on Wall Street is not over.
Key Facts
The S&P could soon rise as much as 3% to 4,150, just shy of its highest closing price since last August, Wilson wrote in a Monday note to clients, as investors regain confidence in stocks even as interest rates continue their ascent and corporate profits roll in at a historically poor level.
But the potential rally will be little more than hubris as “incredibly high levels of inflation…are embedded on the balance sheets,” Wilson added, noting that as long as bond yields remain elevated and the dollar maintains strength it’s unlikely stocks keep gaining.
Put plainly: “The bear market rally will fail,” Wilson wrote.
The S&P, Dow Jones Industrial Average and tech-heavy Nasdaq each gained Monday, looking to extend its winning streak to three days as the market wards off calls from technically-focused experts such as Wilson.
Key Background
2022 marked the worst year for each of the three major U.S. indexes since the depths of the financial crisis in 2008. The S&P is down 15% since the beginning of 2022 despite its 6% rally year-to-date. The gains during 2023’s early months came as the Federal Reserve slowed its pace of increases to the federal funds rate, but the effects of higher borrowing costs have already eaten into corporate bottom lines. During the most recent quarter, companies listed on the S&P beat profit and sales estimates at their worst rates since early 2020, according to JPMorgan analysis.
Crucial Quote
“Don’t confuse the market’s ability to withstand last year’s headwind with an invincibility towards what could be this year’s headwind” of slumping economic growth, Sevens Report analyst Tom Essaye wrote in a Monday note.
Further Reading
Big Tech’s $200 Billion Surge Leads Stock Market Rally—But Rate-Fueled Optimism May Be Fleeting (Forbes)
Source: https://www.forbes.com/sites/dereksaul/2023/03/06/stocks-poised-for-rally-but-dont-expect-it-to-last-noted-morgan-stanley-bear-wilson-says/