At present, hawkish Federal Reserve, high inflation, conflict between Russia and Ukraine and the epidemic are the main arguments that doubt the rebound of US stocks. Sceptic analysts continue to pay attention to the inversion phenomenon on the U.S. Treasury bond yield curve. Some people believe that this is a harbinger of an economic recession and will affect stock market performance. It is understood that the yield curves of 2-year and 10-year U.S. Treasury bonds fell inverted for the first time since August 2019 last week, and then the curve rebounded and did not go inverted again.
And on Monday, one of Wall Street's most outspoken bearers, Morgan Stanley, said that the recent rebound in U.S. stocks will be short-lived. He advised investors to seek safe-haven buying in bonds amid slowing economic growth.
"The bear market rebound is over," wrote Michael Wilson, chief U.S. equity strategist at Morgan Stanley in a note to clients. "This leads us to think that investment in bonds is more constructive in the short term than stocks, as concerns about economic growth have become the focus - so our investment tendency is defensive."
Wilson's view is that the economy is slowing sharply due to "returns in demand brought by fiscal stimulus last year, demand damage caused by high prices, soaring food and energy prices, and inventory that has now caught up with demand." This less "tolerant" macroeconomic background will become increasingly difficult for investors to ignore because it will eat away from corporate profits.
U.S. and European stocks rebounded last month, narrowing their declines in the previous quarter despite investors’ concerns that the Russian-Ukrainian conflict and subsequent sanctions against Russia, one of the pillars of global commodity supply, would exacerbate record inflationary pressures. Wilson and his team have advised investors to take advantage of the upside and said that this round of upside lacks support.
Morgan Stanley's bearish view also contrasts sharply with Morgan Stanley's team. The JPMorgan team has previously called for stocks to continue to rise and said concerns about economic growth have been exaggerated. "Geopolitics remains an uncertainty, but we believe that the fundamental risk returns in the stock market are not as pessimistic as the current popular description," wrote JPMorgan Chase strategist headed by Mislav Matejka in a note. Although Morgan Stanley's Wilson has stepped up its recommendations for defensive stocks, Matejka and his team said traditional defensive stocks "will not rebound after geopolitical turmoil" and recommended reducing positions.
Also at the beginning of this year, Wilson also had the lowest year-end target for the S&P 500 of all the stock strategists surveyed. Wilson had a similar bearish view in 2021, but later admitted that his view was "false", when major U.S. benchmark stock indexes experienced a strong rebound, setting consecutive records.
technical research shows that the S&P 500 index is about to hit a record high
There are many bears like Morgan Stanley. Moreover, Wall Street strategists are currently disagreeing on whether the S&P 500 index is in a bear market rebound and if so, how long will this rebound last. Data shows that the S&P 500 rose about 9% from its lows since the escalation of the conflict between Russia and Ukraine, and fell about 5% from its record high in early January. But technical research shows that these people who sing the opposite tune are likely to miss the opportunity to hit a new high in the stock market. While bear markets often appear after some yield curves are inverted, “strong returns will appear from the point of the yield curve reversal until the final stock market reaches the top.”
According to the chart, the S&P 500 index broke through the high of 4595 points in early February, reversing the so-called head and shoulders top bearish pattern. This technical study shows that it is possible to hit the target around 5200 points, which will exceed the record closing point slightly above 4796 points in early January.
In addition, last week, 80% of the approximately 2,000 constituent stocks in the New York Stock Exchange Composite Index had a share price above the 20-day average. According to compiled data, this phenomenon has occurred 56 times over the past decade, and the index has risen by an average of 6% in the 100 days after these phenomena.
Nasdaq 100 index, which is mainly based on technology stocks, has also sent some positive signals. In mid-March, the index rose more than 10% in four trading days.According to compiled data, it is rare to see at least 10% rise in four trading days, with only 12 occurrences in the past 20 years. And in the 100 days after this, the index's average return rate was 8%.
