Stock markets are in turmoil, and Morgan Stanley is cautioning investors the journey will get even rougher.
On Monday, equity strategists headed by Mike Wilson at Morgan Stanley wrote that investors have “very few places to hide” in markets currently, as even defensive stocks have given in to pressure as of late.”
“The market has been so picked over at this point; it’s not clear where the next rotation lies,” Wilson said. “In our experience, when that happens, it usually means the overall index is about to fall sharply with almost all stocks falling in unison.”
According to Morgan Stanley, the current situation “suggests” the S&P 500 will approach a bear market, indicating a 20% fall from former highs. Moreover, the latest trading may back the insight that markets are entering into a “much broader sell-off phase,” the financial services company said.
Last week, US stocks dropped steeply – counting a fall of almost 1,000 points on the Dow solely on Friday – on concerns about the Federal Reserve’s hawkish moves to combat climbing inflation.
Counting in the significant plummet on Monday, the S&P lost around 12% from high levels in early January.
The S&P 500, where an array of US stocks is listed, had seen bullish progress in the past two years since March 2020, when the Federal Reserve pulled it up amid a rough decline due to the COVID-19 pandemic.
But the Nasdaq has suffered into a bear market in early March with the oil prices soaring and inflation concerns piling up.
Morgan Stanley stated that the closing chapter is a “fast tightening Fed right into the teeth of slowdown.”
Others are under the perception that inflation’s risks to the stock market and economy will bring a positive impact.
“Inflation should ease from current levels, and we do not expect a recession from rising interest rates,” said chief investment officer at UBS Global Wealth Management, Mark Haefele, in a note to clients on Monday.
A few economists are optimistic that inflation may be ultimately at or almost at its peak.