Morgan Stanley says the S&P 500 could drop 26% in months
Expensive US equities are flashing a warning sign that could see the S&P 500
sliding as much as 26% in the first half of this year,
according to Morgan Stanley strategists.
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" Theoretically, stretched valuations are no hurdle for equities as long
as corporate profits are able to catch up.
Whether that will happen again this time is the biggest question facing equity investors today.
In the eyes of Ed Yardeni, the founder of his namesake firm,
the PEG ratio reflects two warring narratives —
one showing investors are willing to look past any short-term roadblocks and pay up for stocks,
and another reflecting mounting skepticism over growth.
“It’s signaling caution because you got a tug of war between the relative pessimism
of analysts and the relative optimism of investors,” Yardeni said.
“It may just turn out that it’s a tug of war where neither side makes any progress,
which is what it could be for a little while.”
Since June, the S&P 500 has been mostly stuck in an 800-point band,
creating headaches for bulls and bears alike.
Over the stretch, the index’s closing prices averaged at 3,939 —
about 30 points away from where it ended Friday.
With the benchmark gauge surging as much as 17% from its October low,
some market watchers have viewed the rebound as the start of a new bull market.
To David Donabedian, chief investment officer of CIBC Private Wealth US,
it’s too early to call the all-clear given stocks have yet to start looking like bargains.
“It didn’t say that back in October either when we had the beginning of this market rally,
” Donabedian said.
"So to me, we have not seen that capitulation phase that every bear market
has where investors throw in the towel, give up hope and you get a market
that looks objectively inexpensive. We’re not there yet.” |
