Improving sentiment for US stocks is at odds with economic data and declining corporate earnings, argued Morgan Stanley strategist Michael Wilson.
US equities’ Wilson pointed to a sharp drop in major indicators on Thursday. This will lead to a sharp drop in corporate profits, which will ultimately lead to a decline in US stocks, he said. The recent optimism from the US Federal Reserve’s hawkish reversal, China’s reopening and a weaker dollar has already priced into stocks, he said.
“The question is when stock indices will factor into the current decline in leading indicators and the eventual decline in hard data.
The S&P 500 index is up nearly 11% since mid-October. That looks expensive compared to historical averages, given months of lower earnings forecasts.
JPMorgan Chase & Co. strategist Mislav Mateika also cited corporate profits as a concern. The environment is expected to be particularly challenging this year as corporate pricing power begins to reverse and weaken.
We expect corporate pricing power to go into recession this year as demand slows and consumer spending wanes. He argued that there would no longer be any “additional support” for corporate income as customers used the savings they had built up during the coronavirus pandemic.
“Even if the company’s results in the fourth quarter of 2022 do not disappoint, we do not expect an upward revision to earnings per share guidance in the first half of 2023,” Matejka wrote in a note.
Original title:Wilson Morgan Stanley Says US Stocks Are Not Pricing on Weak Data, JPM Strategists See Surge in Firms’ Pricing Power About to Reverse (抜粋）
