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Mike Wilson Anticipates 10% Slump to 3900 Points for S&P 500 by Year's End
Morgan Stanley's Mike Wilson predicts that the $S&P 500 Index (.SPX.US)$ will close at 3,900 points by the end of this year, which suggests that stocks will shed 10% of their value.
The S&P 500 has made steady gains this month, after suffering a volatile September in which it plummeted by 5%. So far this year, the index has returned almost 15%.
Consumer confidence is weakening, according to survey data from the University of Michigan, despite retail sales exceeding expectations in September. Wilson stated that while there is optimism about the beginning of the third-quarter earnings season, Wall Street stock analysts have started to slightly lower their expectations for future quarterly and annual profit growth for companies.
Wilson also argued in a note that weakening market breadth and cautious internals of the S&P 500 have reduced the overall odds of a Q4 rally. The note went on to add that the S&P 500 finds itself stuck between rising support, which is propped up by its 200-day moving average, and falling resistance, which is highlighted by its 50-day moving average.
The average stock has already broken down technically,"he wrote. "The signals are weaker and suggest key tactical support is vulnerable."
However, according to Wilson and other strategists, most investors are optimistic about the possibility of a rally in the short term if current levels are maintained, despite some worries about rising interest rates and slowing economic growth.
Our sense from speaking with investors is that a majority still believe a 4Q rally is more likely than not. While that confidence level may have waned a bit this past week, many are still leaning more long than they would like to reduce the probability of missing out in a year in which narrow mega-cap strength has driven benchmarks," Wilson said.
As mentioned above, this sentiment is contingent on price holding up in the short term; if it doesn't, we could see positioning quickly shift to locking in profits and/or relative performance into year-end."
Despite the S&P 500 having a strong technical setup, beneath the surface, the situation for the average stock included in the index looks concerning. This is why Wilson is doubtful of the idea that U.S. stocks have transitioned into a new bull market.
The high in July for the average stock is looking like a classic double top, at least tactically. Furthermore, with only 39% of S&P 500 stocks above their 200-day moving average, it's no wonder it has been a challenging year in terms of keeping up with the high-quality large-cap benchmark influenced so heavily by the handful of mega-cap outperformers—a group that is also seeing a narrowing in leadership and fading of momentum."
In other words, the average S&P 500 stock has declined year-to-date according to the performance of the equal-weighted S&P 500 index. In addition, the equal-weighted index experienced a "death cross" recently, as its 50-day moving average dropped below its 200-day moving average. This indicates that there is potential for continued downward momentum.
Wilson is not the only one on Wall Street adopting a more cautious approach to stocks in recent months. JPMorgan's leading strategist also expressed concern, warning that stocks could crash by 20%, and he was uncertain how to prevent a recession from occurring.
Source: MarketWatch, Fortune, Reuters, Seeking Alpha
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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151842250 : Yeah… right…yes…no…maybe…
151345481 : There's too much nonsense; it's just not wide enough, the head can't fall
71163425 : Just another ubbish forecast, that's all..
71163425 71163425 : rubbish
Emcee : Look at all previous forecasts and what about your own earnings and history . It’s a joke .