SMM News: Morgan Stanley Chief US Equity Strategy and Chief Information Officer Mike Wilson warned that the US stock market is facing four major challenges:
1. Positive mood is unusually high: investors suffered a lot when the stock market tumbled last year, and their mood changed a lot as the stock market rebounded. Consumer confidence is unusually high, suggesting that there is little room for improvement.
2. Volatility soared: stock market volatility has risen sharply over the past few days. Wilson's research shows that when the difference between short-term and long-term interest rates becomes smaller, the volatility index tends to rise after three years. The partial yield curve has been hung upside down twice this year, meaning that short-term yields are higher than long-term ones. This is seen as a warning sign of a potential recession.
3. Volatile profits: traders are surprised by the results the company has reported in recent weeks. But Wilson still believes profits at S & P 500 companies will decline and other analysts will have to cut their forecasts to reflect these weak results. "with extremely low earnings growth in the coming year and saturated valuations, the stock market may have entered a low-risk return period," he said. Short-term earnings expectations are still too high, reaching 5% to 10%. "
4. The risk of recession increases: Wilson does not predict that the US economy will enter a recession, but he says the risk of a recession is increasing. He said one of Morgan Stanley's own internal economic indicators showed that the economy was in the doldrums, and when that happened, stocks typically underperformed bonds. He said there was little upside unless prices fell back to a more reasonable level or the indicator reversed.