Investment & Economy

U.S. stocks may have a 20% correction this year, but they are expected to hit a new record next year From Morgan Stanley

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In a recent report, Michael Wilson, chief equity strategist at Morgan Stanley, said that in the past month, the bank has adopted a different strategy from most equity strategists: it is not excited about reopening the theme, but more concerned about (1) execution risk and (2) what has been reflected in the stock price.

First of all, in terms of implementation, more and more evidence shows that supply is still a problem faced by many companies at a time when demand is picking up. These problems are especially serious in some materials and parts. Now we are also facing the problem of labor shortage. In addition to a lot of surveys and company reviews, Friday’s very disappointing employment report showed that available labor could be a limiting factor in the speed of the economy’s reopening.

In addition, although these problems have not yet fully affected the profit margin, in order to cope with this execution risk, we have downgraded the rating of small cap stocks and early cycle stocks such as non essential consumer goods, and upgraded the rating of essential consumer goods, and proposed to improve the quality curve, that is, focus on high-quality stocks. At the same time, the bank still maintains its preference for inflation, increasing its holdings of financial stocks, material stocks and industrial stocks.

Wilson first highlighted these concerns in mid March and is now more convinced that they are justified. In terms of valuation, the risk has also increased. But with liquidity still plentiful, the S & P 500 is hitting new highs every day, and few seem to worry. For many, the weak employment data only means that the Fed will introduce more easing policies, or at least not withdraw from easing soon. From the perspective of Morgan Stanley, the equity risk premium underestimates these cost / supply issues as well as other issues such as economic and earnings data and peak rates of change in policy and liquidity, extreme equity supply and investor leverage. The market has not completely ignored these risks, the bank said. Since mid February, many stocks and indexes have fallen, some even 30-40%, and have not recovered. Longer term stocks have been the hardest hit, as back-end interest rates are higher than most people expected this year. Lower quality stocks also underperformed.

Wilson said the sell-off of the much touted fanmg stock after the first quarter’s good results reminded us that the stock market tends to peak at good news. From now on, it’s important to see which companies can create new highs amid weak employment reports, the subsequent decline in yields, and the Fed’s greater expectations of easing. The bank is betting on Google (2398.69,   17.34,   73%) on the parent company alphabet.

Wilson also said it needs to be clear that the peak of this rate of change and execution risk is normal when we exit the early stage of recovery and transition to the middle of the cycle. The most intuitive way is to look at the manufacturing purchasing manager index and pay price.

For the future trend, Morgan Stanley said that in the past cycle, 1994, 2004 and 2011 were comparable years. The bank believes that 2021 will be a similar year for investors – with mediocre returns this year, with a correction of more than 10-20%. In such a period, we should invest more selectively. As an investor, the goal is to grasp the transition in the middle of the cycle, avoid the stocks with the biggest decline, and be prepared to seize the opportunities in the next stage.

Wilson stressed that we are only one year away from the trough of recession, and new bull markets tend to last for several years. Therefore, no matter what adjustment the market experiences this year, we are likely to create a higher peak next year. Read more: faamg’s net profit growth turned negative for the first time, and the market value accounted for a 10-year high in US stocks. In the past 37 years, 14183 US stocks have been delisted. US stocks have the largest weekly decline since April 2013. The yield of 10-year US bonds has the largest weekly rise in 10 years. Minsheng Securities: US stocks and Hong Kong stocks lead the way. Where should a shares go? I US stock: 58 city investment research report (IPO Edition) Pedersen Foundation: the largest bull market in the history of the US stock market has no connection with the vast majority of Americans. It is the US stock SaaS company (download). Will the US stocks reappear in the Internet bubble crash? Chart: US stocks and oil prices “go their separate ways” Morgan Stanley: Microsoft’s market value is expected to reach US $1 trillion in the next 12 months. Morgan Stanley reiterated Tencent’s rating target price of HK $679 to increase its holdings. Morgan Stanley: US internet companies are overvalued. Morgan Stanley: Surveys show that European banks need to raise tens of billions of euros. Morgan Stanley: Alibaba’s valuation ranges from 660 to 128 Morgan Stanley: Xiaomi’s fair valuation is 65 billion to 85 billion US dollars

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