Morgan Stanley: S&P 500 will rise in the fourth quarter despite adverse factors

It is more likely that there will be a rebound in S&P 500 in the fourth quarter of 2023 than the one that does not exist, Michael Wilson, from Morgan Stanley.

Wilson and other strategists said most investors believe in a possible rebound if current levels hold in the near term, despite lingering concerns about rising interest rates and slowing economic growth.

“Many are still leaning more toward long positions than they would like, to reduce the likelihood of losing in a year in which narrow strength in mega-cap stocks has boosted benchmarks,” they said, although the level of confidence may have dropped a bit in the last week.

Morgan Stanley maintains its 3,900 price target for the S&P 500 by the end of the year and believes the best way to position itself is a bar of defensive growth stocks with stable earnings and late-cycle cyclical stocks such as energy stocks.

Wilson, one of Wall Street’s most bearish voices, said positive market sentiment depended on current stock prices holding up in the near term.

“If it doesn’t, we could see positioning quickly shift toward profit-taking and/or relative performance later in the year,” said Wilson, chief U.S. equity strategist at Morgan Stanley.

The S&P 500 is up about 13% this year, boosted by AI euphoria and expectations that the US central bank will not raise interest rates further, but the latest economic data and the Fed’s words have changed the feeling in the last month.

Stocks came under selling pressure last week as investors fled to Treasuries following the Hamas militant group’s surprise attack on Israel, but the S&P 500 index managed to post some gains.

“The fact that stocks rallied earlier in the week encouraged thoughts that equity markets could withstand another exogenous shock,” Wilson stated.

Source: Reuters