(Bloomberg) — Equities have but to completely worth within the threat of a recession and should have additional to fall, in response to Morgan Stanley and Goldman Sachs Group Inc. strategists.
Although this 12 months’s stoop in US shares has left them extra pretty priced, the S&P 500 Index must drop one other 15-20% to about 3,000 factors for the market to completely mirror the dimensions of financial contraction, Morgan Stanley strategists led by Michael Wilson wrote in a observe.
“The bear market won’t be over till recession arrives or the chance of 1 is extinguished,” they stated after the benchmark final week closed greater than 20% beneath its January document.
Their views had been echoed by counterparts at Goldman Sachs Group Inc., who stated shares had been solely pricing in a light recession, “leaving them uncovered to an additional deterioration in expectations.”
Investor sentiment on threat property has soured in latest weeks as runaway inflation and a hawkish Federal Reserve have raised the specter of a protracted financial contraction. Wilson, considered one of Wall Street’s most distinguished bears and who appropriately predicted the newest market selloff, stated that ought to a full-blown recession turn into the market’s base case, the S&P 500 may backside close to to 2,900 index factors — greater than 21% beneath its final shut.
Separately, Goldman strategists led by Peter Oppenheimer stated they view the present bear market as cyclical, with stronger personal sector steadiness sheets and damaging actual rates of interest cushioning towards systemic dangers related to structural bear markets.
©2022 Bloomberg L.P.
