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Morgan Stanley: S&P 500 Exceeds 4000 on Expectations. Tactical rally Could Continue by Investing.com


© Stocksak. Morgan Stanley’s Wilson Sees S&P 500 Above 4000 on Expectations Tactical Rally Could Extend

By Senad Karaahmetovic

Morgan Stanley strategists followed up on their last week’s piece that U.S. stocks could stage a near-term rally given oversold conditions.

They noted that even the “slightest whisper of a potential Fed pivot” was enough for equities to stage a rally with the closing the week 4.7% higher. The strategists now see potential for an extended S&P 500 rally in the coming weeks. The 200 weekly moving average, which provides support close to 3600, could help the index reach 4000-4150.

“With the back end of the bond market offering real value for the first time since early 2021, rates are poised to come in. Such a move could provide the necessary fuel for the next leg of the tactical rally in stocks until we get full capitulation on 2023 earnings estimates, something we think may take a few more months,” they said in a client note.

On when the “full capitulation” on EPS estimates may take place, they added:

“We’ll likely have to get closer to 4Q reporting season when companies guide on ’23to get the type of capitulatory action in forward EPS needed to drive a price low.”

The strategists concluded that stocks will not be affected by the downward revisions to EPS over the next few weeks.

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