Don’t expect another bull run anytime soon, says Morgan Stanley strategist
Investors may not want to bet heavily on an autumn stock surge as the fuel behind this year’s rally runs low, said Lisa Shalett, chief investment officer for wealth management at Morgan Stanley.
The S&P 500 Index has jumped more than 16% so far in 2023, a refreshing turnaround for investors in the wake of last year’s drop of 18%. Shalett has remained cautious throughout the market’s bull stampede, wary of the rally’s fundamental underpinnings.
The market’s momentum, however, has waned over the course of the summer. The question now is whether stocks can get their mojo back this fall.
“Our best guess is that we’re going to move sideways and churn around,” Shalett said in an exclusive InvestmentNews interview. “Our sense is that we really hit a wall at the end of July, and that’s when the market really put in its year-to-date highs.”
In July, it became clear that the end of the Fed rate hiking cycle was near, as well as the easy comparisons on inflation, Shalett said. Also fading this summer was the influence of the so-called “magnificent seven” tech stocks on the index, as the ballyhoo over generative AI started to fade.
Further dampening the performance of both big-cap tech and stocks in general was the spike in the 10-year Treasury yield, now above 4.3% and up more than a full percentage point from this April.
“Interest rates may be near their peaking point and that may give stocks a little bit of relief, but as long as you’ve got interest rates that are this high, it’s very hard to kind of expand multiples. And it comes down to only earnings that can drive the bus when interest rates are at this level,” Shalett said.
In her view, Wall Street strategists remain overly rosy with their forward earnings estimates. Although
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