Morgan Stanley has done better than most forecast markets in this turbulent year. Here’s what he says is coming.


Wall Street analysts are the type to arrive at the airport with hours to spare. The outlook for the year ahead comes before Thanksgiving, so it can’t be too surprising that Morgan Stanley released its mid-year outlook just 11 days into May.

No one saw what 2022 held — the bond market’s worst performance in decades, a commodity boom, a war in Ukraine — but Morgan Stanley’s outlook was closer to reality than most, certainly better than the other Wall Street firm with Morgan in its name. He entered the year signaling mid- to late-cycle challenges, warning of high valuations, policy tightening and higher inflation than most. It all seems right.

From archive: Here’s what Wall Street analysts see for the US stock market in 2022

The bank always hits that drum. “With strong labor markets, policy tightening, a flat curve and our economists predicting slowing global growth with a downward bias, we believe a ‘late cycle’ flavor in the market continues. , supporting light global positioning and a premium for portfolio defense/diversification,” the strategists led by Andrew Sheets say.

In practice, this means that Morgan Stanley expects the S&P 500 SPX,
to continue falling, to 3,900 in the second quarter of 2023, although it is more bullish elsewhere. Its top trade recommendation is to go long on Japanese stocks, as the company says recent currency weakness should boost Japanese corporate earnings.

The weakness of the British and Australian currencies, as well as the rally in commodities, also make them bullish on British and Australian equities. In the United States, the firm likes the defensive sectors of health and community services. In commodities, Morgan Stanley prefers oil to gold, as it sees $130 a barrel of Brent BRN00,
in the third quarter, and aluminum on copper.

Probably the most useful graphic provided by the company was this cartoon:

The buzz

U.S. consumer price growth slowed to 0.3% in April, the Labor Department reported Wednesday, but core price growth accelerated to 0.6% faster than expected . Over the past 12 months, prices have gained 8.3%.

Market gains quickly evaporated, with ES00 stock futures,

rotating lower.

The 10-year Treasury yield TMUBMUSD10Y,
rose to 3.04%.

European Central Bank President Christine Lagarde said she expects the central bank’s asset purchase program to end “early” in the third quarter, and the first rate hike could come a few weeks later. The Governing Council of the ECB meets on July 21.

Coinbase COIN,
Shares slipped 14% in premarket trading as the crypto trading app reported lower-than-expected revenue due to lower volume. Also in the crypto space, the so-called algorithmic stablecoin TerraUSD fell as low as 30 cents on the dollar.

Unity U software,
stocks plunged on weak guidance. The Big Earnings Report of the Day, from Walt Disney DIS,
occurs after market close.

Swedish Match SWMA,
recommended a $16 billion cash offer from Philip Morris International PM,

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