The stock market is defying all odds as it continues to rally, despite facing challenges such as Federal Reserve rate hikes, geopolitical tensions, and a slowdown in consumer spending. Even the most pessimistic voices in the industry are being forced to revise their outlook, including Morgan Stanley’s Mike Wilson, who has been ranked the best portfolio strategist in the 2022 Institutional Investor survey.
Wilson had previously warned that stocks had entered the ‘death zone’ and were due for a sharp decline. In May, he cautioned investors against being lured in by the rising S&P 500 figures, stating that the growth did not signify a bull market. However, even Wilson has had to reassess his perspective. In a note to clients, he expressed that 2023 is following a trajectory similar to 2019, which was one of the best years in a decade, with stocks rallying 29%.
According to Wilson, the current rally is being supported by positive policy impact, a strong fiscal impulse, a supportive global liquidity backdrop, and optimism regarding the Federal Reserve’s ability to transition to easier monetary policy due to falling inflation data. He also noted that while there are differences between the conditions in 2019 and 2023, looking at the 2019 analogy suggests that there is still potential upside for the market.
Despite this newfound optimism, Wilson remains skeptical about the economy entering a new cyclical upturn. To be convinced, he stated that he would need to see improvements in a broader range of business cycle indicators, breadth, and front-end rates.
Although Wilson acknowledges that his initial predictions for 2023 were off-track, he still expects the S&P to drop before the end of the year. He has set a year-end target of 3,900, which indicates a 15% decline from its current trading level of around 4,590.
Wilson believes that this shift in optimism is also impacting American households, with consumers becoming increasingly “optimistic” due to the resilient stock and labor markets.
Wilson is not the only economist expressing newfound confidence in the market. Wharton professor Jeremy Siegel has also revised his probability of a recession to below 50%, stating that it could be as low as 30%. Siegel pointed to the surprise 2.4% GDP figure reported for the second quarter and highlighted the continued strength of consumer sentiment.
Siegel believes that while the U.S. may not have a “runaway booming economy,” recent reports indicate a strong economy. He also stated that the outlook for stocks and earnings is good, suggesting that “for now, it looks like the markets are bound to make new highs.” However, he did issue a warning for the technology sector, noting that tech stocks are still expensive and may be impacted by higher interest rates.
In conclusion, despite initial warnings and concerns, both Mike Wilson and Jeremy Siegel have revised their outlook and expressed optimism about the stock market’s rally. Wilson acknowledges the potential for further upside but still expects a drop in the S&P by the end of the year. Siegel believes that the current reports indicate a strong economy and that stocks are likely to reach new highs. However, he cautions about potential risks in the technology sector.
This article provides valuable insights from two seasoned market experts and highlights the complexity of predicting market movements. It emphasizes the importance of considering various indicators and factors when making investment decisions.
Article summary:
– The stock market continues to rally despite challenges.
– Mike Wilson of Morgan Stanley has revised his outlook and acknowledges the potential for further upside.
– Wilson points to positive policy impact and a supportive global liquidity backdrop as factors driving the rally.
– He expects the S&P to drop by the end of the year but acknowledges the positive sentiment among consumers.
– Jeremy Siegel, a Wharton professor, has also expressed greater confidence in the market and revised his probability of a recession downward.
– Siegel highlights the strong economy and positive outlook for stocks and earnings, with a caution about the technology sector.
Key points to note:
– The stock market is rallying against all odds.
– Mike Wilson has revised his outlook and sees potential upside.
– Positive policy impact and strong consumer sentiment are driving the rally.
– Jeremy Siegel has also expressed greater confidence in the market.
– The outlook for stocks and earnings is positive, but caution is advised for the technology sector.
To read the full article, visit: [Even one of Wall Street’s staunchest bears, Morgan Stanley’s Mike Wilson, says the stock market ‘pivot rally’ may go higher](https://fortune.com/2023/08/01/mike-wilson-morgan-stanley-wall-street-stock-rally-jeremy-siegel/)