Morgan Stanley: August or September Could Mark the First Negative Payroll Print, Leading Risk-off Sentiment in Financial Markets to Soar
Morgan Stanley forecasted the Fed to hike interest rates further in July after Powell signaled that more interest rate increases would approach as the process of getting inflation back down to 2% has a long way to go. As radical rate hikes may accelerate the possible recession, Morgan Stanley predicted the nonfarm payroll (NFP) could turn negative first in August or September.
Ellen Zentener of Morgan Stanley: "We now judge that the bar for a July hike is significantly lower than we had initially expected and have added a 25bp hike to our policy path; It is highly likely that at least one of those prints will be negative, either August or September could mark the first negative payroll print. "
According to Zentner, the negative payroll print may result in the risk-off sentiment soaring in financial markets, especially with investors still concerned about the recession.
Mike Wilson, the chief U.S. equity strategist at the bank, maintained his bearish view on U.S. stocks and warned about a higher downside risk of the S&P 500 Index. His year-end forecast for the S&P was 3,900, almost 11% lower than the latest close. His view is based on the outlook of 1) lower-than-expected profit risk and 2) deteriorating liquidity.
1. Profit risk: Wilson holds the 2023 S&P 500 EPS forecast of $185, about 16% below the market consensus of $220. The earnings misses are mainly due to "deteriorating pricing and top-line disappointment," according to Wilson.
2. Liquidity deterioration: Another headwind supporting his bearish views is deteriorating liquidity, with surging Treasury issuance and fading fiscal support.
Wilson: "The headwinds significantly outweigh the tailwinds and we believe risks for a major correction have rarely been higher". Also, he predicts the value shares may outperform the growth as investors turn to defensive sectors.
Source: Bloomberg, CNBC, SIFMA
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Chief DB : So basically, things are going to get worse before they get better.
TedSPY Chief DB : why does the title says "Leading Risk-off Sentiment in Financial Markets to Soar"
Chief DB TedSPY : Great question. Titles don't seem to match article content much these days. I guess it's the trendy thing to do
TedSPY Chief DB : hoping for a pull back to early May levels.. the recent rally makes no sense