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Although many Wall Street think the October market rout will be short-lived, Morgan Stanley takes a darker view, reports CNBC.
"The bear market continues to grow and it is increasingly evident that it is turning into a true cyclical bear market in the context of a secular bullish," wrote Michael Wilson, the bank's chief equity strategist. "We believe that the evidence is piling up and that Mr. Market's message is clear: the consensus outlook for earnings growth is too optimistic next year."
The bank's strategists fear that the Federal Reserve and other central banks will no longer draw cash from the financial system than most market participants expected, creating a hurdle for equities.
Noting that about half of the stocks making up the broad-based MSCI US Equity Index are at least 20% below their 52-week high, Mr Wilson said the markets were "quietly revolting" throughout the day. 39; year.
"We do not think that the revolts will stop until the central banks pause or at least signal their concern," he added. "While the Fed must react to still solid economic data and its willingness to remain apolitical, we believe that it would still need 200 S & P points, which would make 2450 a reasonable downside."
Wilson is also worried about how the stock market has sold, with technology stocks and discretionary consumer shares. It is in these areas that fund managers are the most exposed, which means that their portfolios are suffering a lot right now, he said.
–Ross Snel
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