Bloomberg News reports that forecasts related to weakening corporate profits may offer an insight into the latest headwind to the US stocks, which are likely to drop further before going to rock bottom during the second-quarter earnings season, as per strategists at Morgan Stanley.
As per the company’s strategy led by Michael Wilson, companies are usually slower to guide down when there is an absence of shock-like recession, as stated in a note on Monday. And this time around, it should not be any different, and this means stocks can be hanging around at the current levels till the second-quarter earnings season when the next leg is likely to begin at a lower end.
Among the most prominent bears of Wall Street, Wilson is one. He has rightly predicted the latest market selloff, fueled by the worries that Federal Reserve, which is hawkish, might tip the economy into a recession. On Friday, the vital jobs report further triggered those concerns and led the S&P 500 to a decline in the eighth in nine.
Ample room to fall
Wilson has predicted that the US benchmark will be trading close to 3,400 by the middle-to-late August, indicating another 17% slide from the latest close. The most significant 5% of the S&P 500 stocks are still trading at a 40% median premium to the pre-pandemic levels compared to 17% for the broader index, stated Wilson.
The strategist also wrote that such a scenario potentially presents a downside, where the stocks might be the last shoe to drop before the exit from the current bear market.
Bear rally
Bloomberg News reports that Bank of America Corp strategists, including Michael Harnett, says that the stocks are presently staging a bear market rally, also adding that it would short S&P 500 by over 4,400 index points, which is approximately 7.1% above the closure on Friday.
Despite the same, not everyone is expressing pessimism. JPMorgan Chase & Co. strategists, including Mislav Matejka, continue to remain bullish on the stocks, stating that it is pretty likely that the fundamental risk-reward might improve as the latter part of equities the year is being entered.
Bloomberg News reports that in the US, on the sector level, Morgan Stanley’s Wilson stated that food and staples retailing estimates had been found to collapse over the last four weeks. Tech hardware and consumer discretionary have also been weakly forecasted, while the strongest revisions have been seen in the real estate sector over the previous month.
In Europe, risks to the corporate earnings are growing as per Stanford C. Bernstein, strategists Mark Diver and Sarah McCarthy, who revealed on Monday that there might be a large margin squeeze impending unless surging consumer demand and sales can persistently counter high inflation.
