With their wild swings and reversals by the Federal Reserve to curb inflation, US equities are anything but easy to call this year, a challenge exemplified this week by two of Wall Street’s most prominent strategists.
Morgan Stanley’s Mike Wilson says US stocks are poised for a short-term rally given the lack of earnings capital. This is an unusual positive call from long bears that correctly predicted this year’s bearish run.
In contrast, Marko Kolanovic of JPMorgan Chase & Co., one of Wall Street’s most outspoken bulls, has displayed more caution for the coming months, citing increased risks from central bank policies and geopolitics. In fact, Kolanovic cut the size of his equity overweight and bond underweight allocations.
Shifting — and divergence — views between Wall Street firms highlight equities facing uncertainty for the rest of the year. In the latest Bloomberg poll of strategists, the highest year-end target suggests an increase of about 39% for the S&P 500 since Monday’s close, while the lowest forecast suggests a drop of about 13%.
Despite his revised short-term outlook, Wilson still maintains his overall negative long-term stance on equities, while Kolanovic sees the shares firm up until some point next year.
Shares have started the week on a strong note. S&P 500 futures advanced 1.5%, extending a broader rally after closing above a key technical support level on Monday. At one point yesterday, US equity benchmarks were up more than 99% of companies.
Morgan Stanley’s Wilson wrote in a note Monday that he “won’t rule out” the S&P 500’s rise to nearly 4,150 points — up about 13% from yesterday’s close — adding that it was “in line with bear market rallies.” years and earlier ones.” Nevertheless, the chief equity strategist said that he sees a bear market eventually bottoming out around the 3,000 to 3,200 mark.
JPMorgan’s Kolanovic sounded a downbeat note in a report to clients published late on Monday. His decision to reduce the risk allocation in the model portfolio follows a note earlier this month, when he cited the risks of aggressive central banks and the war in Ukraine. He indicated that it may take longer for the S&P 500 to reach the firm’s year-end target of 4,800.
So far this year, prices have risen from one session to the next, and further declines, indicating the anger of strategists and investors. An analysis by Bespoke Investment Group showed that over the past 200 trading days, the S&P 500 has closed on only 43% of them — one of the weakest readings we’ve seen in the past 70 years.
Other Wall Street bulls are turning their predictions to meet the challenges in the US economy. John Stoltzfuss, chief investment strategist at Oppenheimer Asset Management, cut his S&P 500 target on Monday but made it clear he is still bullish on equities.
“We believe that the US economic infrastructure remains remarkably resilient, despite continuing high levels of inflation, increasingly restrictive monetary policy to address inflation, and supply chain problems,” he said in a note. challenged in a highly transitional environment.”
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