Morgan Stanley’s done better than most forecasting markets during this turbulent year. Here’s what it says is coming next.
Wall Street analysts are the types who get to the airport with hours to spare. Year-ahead previews come in before Thanksgiving, so it can’t be too huge a surprise that Morgan Stanley has released its mid-year outlook just 11 days into May.
Not that anyone has seen what 2022 had in store — the worst bond market performance in decades, a surge in commodities, a war in Ukraine — but Morgan Stanley’s outlook was closer to the mark than most, certainly better than the other Wall Street firm with Morgan in its name. It came into the year flagging mid-to-late cycle challenges, warning about high valuations, tightening policy and inflation higher than most are used to. All of that sounds about right.
From the archive: Here’s what Wall Street analysts see for the U.S. stock market in 2022
The bank is still banging that drum. “With strong labor markets, tightening policy, a flat curve, and our economists forecasting slower global growth with a downside skew, we think that a ‘late-cycle’ flavor to the market continues, supporting light overall positioning and a premium for portfolio defense/diversification,” say the strategists led by Andrew Sheets.
In practice, that means Morgan Stanley expects the S&P 500 SPX,
The weakness in both the U.K. and Australian currencies, as well as the commodity rally, also makes them optimistic toward U.K. and Australian stocks. In the U.S. , the firm likes the defensive sectors of healthcare and utilities. In commodities, Morgan Stanley prefers oil over gold, as it sees $130 per barrel Brent BRN00,
Probably the most useful graphic the firm provided was this cartoon:
The buzz
U.S. consumer price growth slowed to 0.3% in April, the Labor Department reported on Wednesday, but core price growth accelerated to a faster-than-forecast 0.6%. Over the last 12 months, prices have gained 8.3%.
Market gains quickly evaporated, with stock futures ES00,
The yield on the 10-year Treasury TMUBMUSD10Y,
European Central Bank President Christine Lagarde said she expects the central bank’s asset purchase program will end “early” in the third quarter, and that the first rate hike could come as early as a few weeks afterwards. The ECB’s governing council has a meeting on July 21.
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