Against most forecasts, rapid interest rate hikes, even higher inflation, declining corporate results, a recently averted credit crunch, a renewed interest in cash (cash) by savers and investors and recession forecasts, the New York Stock Exchange S&P 500 index has technically exited a bear market.
20% rise above October 12, 2022 minimum to start bullish cycle is official. Bear and Bullmeaning bear and bull, in their respective English forms).
live Bull market?
Not so fast, says Michael Wilson, chief strategist at Morgan Stanley. „We respectfully disagree”In his note to investors this week, he explained the possibility of a bull market in the market.
According to this Wall Street firm, „Although institutional investors and retail investors (retail) are positioning themselves,” this is early for this directional change in the market compared to the beginning of the year.
Knowing that this was not part of the consensus, the Wilson-led team believed it The forecast of the company’s results continues to be sluggish And it seems very difficult to be one that stops and turns. His predictions are happening as „the market processes healthy decisions” in 2024.
Goldman Sachs trust
David Kostin, a strategist at Goldman Sachs, was among those betting that the bear market was in the past (compared to the 4,000 previously expected), a roughly 5% increase relative to the moment.
Goldman Sachs economists are also optimistic about a possible recession, considering it a 25% chance of a mild recession instead. The race continues at 65% recession And that percentage could rise if the central bank decides not to pause its rate hikes at its meeting this week.
For Ghost’s team, the great engine of this emerging market is artificial intelligence, the wind that blew in the sails of the big tech giants as it catches up with others. The largest companies in the S&P 500 — Apple, Microsoft, Amazon, Google and Nvidia — are up 47% so far this year and now account for 24% of the index’s total market capitalization.
Goldman Sachs admits that the remaining 495 stocks fall short of 5% returns, but their view is that this wide gap will narrow as other companies join the trend. The Russell 2000 (a small-cap index) has outperformed the S&P 500 (by five percentage points) since June.
Both Wilson at Morgan Stanley and Austin Bickle at Wells Fargo are skeptical that the rest will catch up with the leaders in this race toward AI, even as they acknowledge how much interest in AI has contributed to the rise.
Doubts about the effect of artificial intelligence
„Although individual titles are going to experience rapid growth due to investments in AI this year, we don’t think it will be enough to significantly change the cycle path of results,” they explain from Morgan Stanley. „What’s more, it’s something that could still put pressure on the margins of companies that decide to invest in AI, despite stagnation or slowdown in growth over the medium term.”
„The market’s peak has not lasted,” says the Wells Fargo strategist, referring to the current situation and comparing it to others in the past.
“We expect the recent strong performance of large cap companies to be correctedAs we have seen throughout history, these companies are at the same level of values, or average values reach the names above.
In this scenario Goldman Sachs is betting that the macro situation needs to improve, recalls Bickle. „We see a slowdown on the horizon and we think the median is going to continue to struggle, indicating that the current rally is on shaky ground.”
At Wells Fargo they share Morgan Stanley’s view that everything around AI has „masked the impact of poor forecasts and decisions and the effect of higher interest rates.”
Along the same lines, Wilson believes that thinking that the impact of rate hikes has already passed is one of two wrong assumptions investors can make. Another thinks that some parts of the market „including cyclical stocks, technology and communications services have already hit their bottom last year and are going to see rapid growth even as other parts of the market suffer.”
At Goldman, if economic growth is maintained and inflation continues to fall in line with what their economists expect, risk in the markets will be reduced.
Wilson wasn’t even impressed with the rise from the October lows:
“We don’t see much value at the 20% threshold to declare a bull market. Our decision focuses more on fundamentals, valuations and expectations. In short, it is more pessimistic than the consensus view that assumes a history of acceleration again in the second half.
There are also examples in history of a bear market crossing the threshold to go back down. What happened in 1946 is in the books.