It can’t always go up…
Wall Street’s most notorious skeptic, Mike Wilson of Morgan Stanley, anticipates a significant market correction despite the current highs seen in U.S. stock indices. Wilson, who has held a bearish outlook over the past three years, recently adjusted his target for the S&P 500 to 5,400 points as inflation concerns subsided, and economic indicators suggested a possible gentle economic downturn rather than a harsh recession.
I was just reading in Barron’s that JP Morgan strategist Marko Kolanovic, aka. “The last bear on Wall Street” is leaving Wall Street.
This is considered good news for bulls – to own a totally one sided market.
FYI, this is the same pattern we saw in March aka. a three wave… pic.twitter.com/ArjDTw4W80
— Mac10 (@SuburbanDrone) July 9, 2024
Despite his slight concession, Wilson remains more cautious than his peers, especially with the S&P 500 continuing to surpass expectations amid a strong stance on interest rates by the Federal Reserve. A critical factor in his analysis is the uneven performance across different sectors, particularly highlighted by the disproportionate influence of mega-cap tech companies. Notably, just five companies—Nvidia, Apple, Microsoft, Amazon, and Alphabet—now constitute about 28% of the S&P 500’s market weight, a record concentration.
In the Midst of Bear Hunting Season on Wall Street-
The Biggest Bear
Special Guest: Peter Berezinhttps://t.co/HffXTaWrZv— Charles V Payne (@cvpayne) July 9, 2024
This imbalance was starkly illustrated as Nvidia’s spectacular rise contributed significantly to the S&P 500’s overall performance this year, echoing a similar phenomenon from Apple in 2020. Despite these gains, Wilson suggested on a recent financial segment that the prospects for further upside through the end of the year are slim, given the current market dynamics.
He predicts a turbulent market as the year progresses, particularly with the upcoming U.S. presidential election. Wilson anticipates a potential 10% drop in market values in the near term, predicting a rocky third quarter as political and economic uncertainties intensify.
US TECHNOLOGY STOCKS VALUATIONS ARE THE HIGHEST IN OVER 2 DECADE:
S&P 500 Information Technology sector Price to Earnings* (P/E) ratio is now 31x, the most in over 20 years.
This even higher than before the 2022 bear market.
*Earnings estimated by Wall Street 12 months forward pic.twitter.com/n3uGPR3RVx
— Global Markets Investor (@GlobalMktObserv) July 8, 2024
The forthcoming quarterly earnings reports will be pivotal, with major banks like JP Morgan, Wells Fargo, and Citigroup poised to release their figures soon. Although the financial sector is expected to account for only 18% of the S&P 500’s projected earnings, the majority of profits are likely to emanate from the technology and communications sectors, reinforcing the trend of sectoral concentration that underpins Wilson’s cautious stance.
Key Points:
- Mike Wilson of Morgan Stanley predicts a significant market correction despite recent highs in the S&P 500.
- Wilson has adjusted his S&P 500 target to 5,400 but remains less optimistic than his peers due to high sector concentration and economic indicators.
- Mega-cap tech firms, especially Nvidia, heavily influence market performance, overshadowing broader sector gains.
- Wilson forecasts a 10% market correction likely before the U.S. presidential election, citing a potentially turbulent third quarter.
- Upcoming quarterly earnings, particularly from the financial sector, will be crucial in assessing the market’s near-term trajectory.
RM Tomi – Reprinted with permission of Whatfinger News
