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JPMorgan’s Dubravko Lacus and Morgan Stanley’s Mike Wilson are seeing the end of the market rally.
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Higher interest rates for longer than the Fed and a possible sharp downturn in the economy threaten to drag stocks down.
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The S&P 500 rose 21% during the first seven months of the year, but now looks set for a monthly loss in August.
Standard & Poor’s 500 On the way down monthly After big gains earlier this year, two of Wall Street’s most prominent strategists believe the stock market rally is over.
Dubravko Lakos, chief global equity strategist at JPMorgan, said in an interview with CNBC earlier this week that the market is constrained, and that He warned that investors are overly optimistic in their positions.
He also pointed to higher stock values relative to earnings, a potential decline in federal spending next year, and the central bank’s remaining hawkish policy. At the same time, he is skeptical of a soft landing in the economy.
“I find it hard to believe that inflation will come down, that the Fed will cut interest rates, and that growth will be OK,” he said.
Federal Reserve Chairman Jerome Powell said Friday in a speech in Jackson Hole, Wyoming Further policy tightening remains on the table.
Mike Wilson of Morgan Stanley said the latest evidence of a market downturn was Nvidia profits outperform This week and the failed market rally that followed.
“Remember, markets top the list on good news, and bottom on bad news,” Wilson said in an interview with Bloomberg. “I can’t think of any better news than the one we got from (Nvidia) on Wednesday… We had a failed rally. This is another negative technical sign that the rally has run out. We’ll need a story to tell.” It gets people excited, and I don’t know what the story is.”
Throughout the year, some select growth names outperformed, but investors extrapolated to this performance in the rest of the market, and it didn’t make much sense.
“We feel that when this spike started in May around AI, we think it widened a little too much,” Wilson said. “We’re bullish on AI in the long run, but in the near term it’s going to be more expensive, and there’s going to be a big investment phase.”
For the latter half of 2023, Wilson said he is focused on how sustainable the narrative around a small group of growth names will be, and whether hawkish central banks will influence those prospects.
“I think what happens in these periods is that people’s opinions are driven by price action in the market,” he said. “They are looking for the market to tell them whether or not it’s going to be a hard fall. The odds of a recession are still higher than usual. Price action dictates opinion – that’s where we are, and if things continue to weaken here, then this hard landing narrative could come back again. “
Read the original article at Business interested
