The S&P 500 Index posted its biggest decline in six months on Monday (20th). Investors worry that this is the prelude to a longer-term pullback. The current Wall Street tycoons have different opinions. Morgan Stanley believes that the U.S. stock market’s fall is inevitable. The probability of a decline of 20% has risen, and JP Morgan advocates that the fundamentals of the stock market remain unchanged and the time to buy on dips has come.
Morgan Stanley (Moscow) analyst Mike Wilson said that although the 20% decline in U.S. stocks from the high point is a more severe scenario in their forecast, more and more evidences show that economic growth has slowed and consumer confidence has declined. The probability of occurrence of the situation is increasing. Morgan Stanley recommends that investors hold defensive stocks and maintain some positions in financial stocks, which can benefit from rising interest rates.
According to Morgan Stanley’s proposal on Monday that US stocks are facing two scenarios of “ice and fire”, in the case of “fire” (not so pessimistic), the S&P 500 index will fall back 10%, which is a milder and healthy correction. However, in the case of “ice” (more pessimistic), US stocks will plummet by 20%, as the economy decelerates sharply, squeezing corporate profits.
Many investment banks have recently expressed negative views, among which Morgan Stanley belongs to the more pessimistic group. For example, Goldman Sachs and Citigroup both predict that the persistent gains in US stocks may be facing a negative impact.
JPMorgan Chase recommends buying on dips
JPMorgan Chase is one of the few, still bullish on US stocks. Strategists such as Marko Kolanovic said that Monday’s plunge was mainly triggered by low market liquidity and technical selling pressure-such as option hedging and commodity trading advisory funds (CTA) and other computer program trading, which is an overreaction of irrational traders.
He said: “Our view on fundamentals remains unchanged. This wave of selling pressure is an opportunity to buy on dips.”
Kolanovic’s target price for the S&P 500 at the end of the year remains unchanged at 4,700 points after the revision last week. The reason is that the Delta epidemic will slow down and corporate profits are better than expected.