Morgan Stanley (NYSE:MS) warns that US stocks face a 22% drop. According to Morgan Stanley strategists, US equities face far greater drops than many pessimists anticipate, with the threat of recession likely to compound their worst annual slump since the global financial crisis.
Michael Wilson, a long-time bear for US stocks, stated that while investors are pessimistic about the outlook for economic growth, corporate profit projections are still too high, and the market risk premium is at its lowest since the run-up to 2008. This implies that the S&P 500 might go substantially lower than the market’s current estimate of 3,500 to 3,600 points in the case of a mild recession.
We still anticipate that the Federal Reserve will hike interest rates at its next meeting, though by only 25bp, compared with the 50bp increase in December, but continued robust jobs growth could increase the risks of extending the tightening cycle beyond the next meeting. 4/5
– Morgan Stanley (@MorganStanley) January 6, 2023
“Everyone is talking about this recession, we’ve got the most telegraphed recession in the history of mankind coming up, and the problem is everyone is using muscle memory to go back into what they think of as the safest equity market, which is the S&P 500. Trouble is, if everybody is in the S&P 500, and they’re all selling at the same time, the S&P isn’t really that safe,” Subramanian said in an interview with Bloomberg on Wednesday. Investors seeking shelter in the S&P 500 will only worsen the volatility, Subramanian warned.
“Everybody is using muscle memory to go back into what they think of as the safest equity market, which is the S&P 500,” the firm’s head of US equity and quantitative strategy told Bloomberg Television’s The Open on Wednesday. “The trouble is if everybody is in the S&P 500 and selling at the same time, the S&P isn’t really that safe. The S&P 500 is the most crowded ticker in the world and it’s time to go into other benchmarks, like small caps.” Small caps “is an area where you can get exposure to equities without the risk of everybody being crowded into the same index fund.”
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Troubled times are seen ahead as Goldman Sachs lays off 3,200 workers.
What’s the outlook for M&A activity in 2023? Listen now: https://t.co/IBnHW7Jkpz #ExchangesGS pic.twitter.com/LL42gP0yR5
– Goldman Sachs (@GoldmanSachs) January 4, 2023
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