Andrew Slimmon, Senior Portfolio Manager at Morgan Stanley Investment Management, stated on Tuesday that even as the US stock market hit a historic high, investors still hold onto cash, indicating that there is still considerable room for the market to expand gains.
Slimmon pointed out in an interview that low expectations for stocks and a preference for 5% -6% short-term US Treasury yields indicate that the market is still in the "fear" stage of the current cycle.
Slimmon pointed out that this is a typical phenomenon in the early stages of a bull market. In the later stages of a bull market, people will expect higher returns.
The US stock market rose again on Tuesday, continuing its upward trend since May. The S&P 500 index rose 0.3%, reaching its 24th closing record high for the year. The Nasdaq Composite Index also hit a new high, rising 0.2%. The Dow Jones Industrial Average rose 66 points, or 0.2%. These three major indices have all risen at least 5.4% this month.
Investors still hold a large amount of ammunition
Slimmon stated that the valuations of many stocks are currently quite reasonable, and the large amount of funds in the money market may drive the next wave of stock market growth.
In Slimmon's view, although the S&P 500 index has risen 11% this year, traders are still betting that the Federal Reserve will start cutting interest rates later this year, but investor confidence is not very strong.
According to the latest data from the Investment Company Institute, the amount of funds flowing into money market funds increased by over $16 billion in the week ending May 15th, reaching over $600 billion.
Slimmon stated that the large amount of cash still waiting to be deployed will be a catalyst for further market growth, as if stocks continue to rise, people's fear of short selling (FOMO) will become very strong.
He pointed out that this would be more motivating than a decrease in US Treasury yields. Last year, when the S&P 500 index surged by 24%, this portfolio manager's optimistic prediction was proven to be correct.
Greed emotions still need to be stimulated
Slimmon said, "From a typical cycle of fear to greed, we are still in the fear stage. I completely believe that only continuously increasing stock returns can make people no longer wait and see."
He added that expectations of sustained growth in corporate profits and easing inflation should encourage investors to become more optimistic.
Of course, this does not mean that an increase will be smooth sailing. Slimmon predicts that there may be a pullback in the US stock market, such as the risk of a pullback during this summer's seasonal weakness.
It is worth mentioning that on the day before Slimmon's statement, his colleague at Morgan Stanley, Chief Stock Strategist Mike Wilson, had just significantly increased his forecast for the next 12 months of the S&P 500 index.
Wilson's latest forecast is that the S&P 500 index will rise 2% to 5400 points by June 2025.