Are the sales that hit Wall Street since the beginning of September just the starter of what will happen to the US stock market between now and the end of the year?
At a time when market operators are questioning themselves not only on the sustainability of the market rises, but also on that of recovery of US GDP and post Covid-19 global GDP, Morgan Stanley launches the bearish alarm:
US-made equities could suffer a drop of 20%, due both to the withdrawal of fiscal stimuli that have kept the economy afloat, and to the slowdown in growth.
The note, reported by the CNBC, is signed by Mike Wilson, strategist of the stock market division of the American banking giant.
“Given the extraordinary fiscal stimulus launched during the recession, we are concerned that the inevitable slowdown in growth ends up being much worse than expected at the moment “. This, Wilson continued, “it’s an ‘Ice’ scenario, which would lead to a stronger mid-cycle transition correction for the S&P 500 than usual, equal to 20% “.
Wall Street, Morgan Stanley presents Ice and Fire scenarios
The “Ice” outlook, Wilson explains, would occur in the event of a downward revision in earnings and a slowdown in macro data.
The analysts led by the strategist also illustrated another scenario, “Fire”: a more positive or rather less negative outlook, which would materialize if the Fed began to remove the accommodative measures launched, thus adopting tapering, in the face of an overheating of the economy (and therefore of US inflation). In this regard, the FOMC, the monetary policy arm of Jerome Powell’s Fed, meets today and will announce its monetary policy decisions tomorrow, Wednesday 22 September.
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Morgan Stanley’s scenarios for Wall Street, therefore, are two: one “Ice” scenario and one “Fire” scenario.
The Ice scenario, considered more likely, would be “destructive”, as it would trigger a 20% correction in the S&P 500 index, while the “Fire” scenario would cause a 10% correction that Wilson defined “Modest and healthy”.
“Will it be Fire or Ice? We don’t know, but the Ice scenario would be worse for the markets, and we believe that will be the direction – analysts wrote – We believe that the mid-cycle transition will end with a correction that will eventually hit the S&P 500 ”.
Wall Street: JP Morgan still believes in it
On the other hand, JP Morgan is not so pessimistic, far from it: in particular Marko Kolanovic, head of global markets strategist also downplayed the Yesterday’s collapse of Wall Street, which saw the Dow Jones slump more than 600 points and the S&P report its worst session since May, in the wake of anxiety over the upcoming FOMC meeting – the Fed’s monetary policy arm – and panic as well. linked to the case of the Chinese real estate giant Evergrande, on the verge of default.
According to what was reported by the CNBC, Kolanovic wrote in a note that he believes that the strong sell off has transformed US shares into a buying opportunity.
“We believe the market sell off was triggered in the first place from technical sales flows by commodity trading advisors and option hedgers, in a context of low liquidity, and by the overreaction of discretionary traders to perceived risks, ”commented Kolanovic.
In short, yesterday’s disaster was caused above all by factors of a technical nature.