As Wall Street's concerns about the outlook for the US economy weaken, Morgan Stanley, which has not been bullish on the US stock market for two consecutive years, has recently changed its attitude.
Recently, strategists at Morgan Stanley stated in a report to clients that they expect the performance of the US stock and bond markets to outperform emerging markets next year. Da Mo's optimistic expectations for next year's US stock market mark a shift in the bearish view of mainstream Wall Street investors on the US stock market.
US stocks may outperform emerging markets next year
Strategists such as Serena Tang from Morgan Stanley wrote in their report, "We expect the earnings growth of the United States (companies) to bottom out in early 2024 and rebound thereafter
They believe that compared to other regions, economic growth in the United States may remain strong, while economic growth in emerging markets may be disappointing.
Morgan Stanley suggests balancing the defensive growth sector of large cap stocks with cyclical stocks located in the later stages of the cycle, such as energy and industrial stocks, and expects the S&P 500 index to reach 4500 points by the end of next year. As of the close of last Friday Eastern Time, the S&P 500 Index closed at 4415.24.
Da Mo also added that the Federal Reserve needs to find the right balance between "just right tightening and fast enough easing".
Is Wall Street changing its pessimistic attitude towards US stocks?
Da Mo's optimistic expectations for the US stock market next year mark a shift in the bearish view of Wall Street investors on the US stock market.
Previously, due to persistent concerns about the Federal Reserve's interest rates rising for an extended period of time, some bearish Wall Street insiders had consistently held relatively pessimistic expectations for the outlook for US stocks.
Even now, Michael Wilson, one of the most famous bearish figures on Wall Street and Chief Strategist of Morgan Stanley, has set his long-term target for the S&P 500 index at 3900 by the end of this year.
In the first two years, we had a strong preference for recommendations from the 'Rest of the World> US', but 2024 was different, "the Daimler&Gamble report said of asset allocation next year." The hedging sentiment in the first half of the year also drove the demand for hedging in US dollars and dollar-denominated assets
US bonds may be more attractive
Da Mo predicts that the Federal Reserve will cut interest rates for the first time in June next year. The strategists of Morgan Stanley also believe that with the support of the Federal Reserve's "easing" policy, US bonds may become more attractive than a year ago.
They expected that, as the market reflected the beginning of the interest rate cutting cycle, the yield of US Treasuries might decline until the end of 2024- the yield of 10-year US treasury bond bonds would fall back to 3.95%. As of last Friday, the yield of 10-year US treasury bond bonds was 4.6518%.
At the same time, Morgan Stanley is cautious about fixed income assets in emerging markets, believing that if the US treasury bond bonds do not recover, the recovery prospects of local bonds in emerging markets will be more limited.
Strategists wrote, "From the perspectives of stocks, credit, and local interest rates, the return prospects of emerging markets seem less convincing." They mentioned that geopolitics will bring pressure to some countries, which will still be a disadvantageous factor constraining the performance of emerging markets.