①Morgan Stanley strategists stated in a report on Monday that despite the ongoing Iran war, the current correction phase of the U.S. stock benchmark S&P 500 Index is nearing its final stage; ②Since January 27, the S&P 500 Index has fallen by 8.4%. The market has been hit by both the uncertainty surrounding artificial intelligence (AI) prospects and the impact of the Iran war.
Cailian Press, March 30 (Editor Xia Junxiong) Morgan Stanley strategists stated in a report on Monday that despite the ongoing Iran war, the current adjustment phase of the U.S. stock benchmark S&P 500 Index is nearing its final stage. The bank also warned that interest rate hikes by the Federal Reserve remain a threat to the stock market.
The analyst team led by Michael Wilson, Morgan Stanley's Chief Investment Officer and U.S. equity strategist, noted that increasing evidence suggests this round of stock market declines is 'gradually approaching its end.'
They cited precedents from previous episodes of 'growth panic,' during which markets were concerned about economic growth prospects but without accompanying recessions or interest rate hikes.
The strategists pointed out that more than half of the stocks in the Russell 3000 Index have fallen over 20% from their 52-week highs. Meanwhile, the forward price-to-earnings ratio of the S&P 500 Index has dropped by more than 15%, indicating that market pricing increasingly reflects risks stemming from the Middle East conflict.
The strategists wrote in the report: 'We believe that the stock market’s vigilance towards growth risks exceeds the broader market consensus.'
Since January 27, the S&P 500 Index has fallen by 8.4%. The market has been impacted by dual pressures from uncertainty regarding artificial intelligence (AI) prospects and the Iran war. The conflict has led to the blockade of the Strait of Hormuz, cutting off a critical global energy supply route.
As more U.S. troops arrive in the Middle East and the Iran-backed Houthi forces in Yemen join the conflict, Brent crude oil, the global oil price benchmark, rose to $116.89 per barrel on Monday.
The Morgan Stanley team stated that the market has already factored in higher energy costs to some extent. They noted that compared to historical oil shocks that ended economic cycles, the current increase in oil prices is approximately half of what was seen in the past. Additionally, sustained growth in corporate earnings will help mitigate the risk of economic recession.
Data compiled by Morgan Stanley shows that earnings of companies in the S&P 500 Index are expected to grow by 20% over the next 12 months.
The market believes that the cumulative probability of various pathways to restore tanker traffic in the Strait of Hormuz is significantly higher than the probability of an economic recession, and we agree with this view," the analysts wrote.
However, they also emphasized that interest rate hikes remain a short-term risk for the U.S. stock market. The current sensitivity of the equity market to interest rates is near its highest level in recent years. The yield on the 10-year U.S. Treasury bond is also approaching 4.5%, a level that historically tends to pressure stock valuations.
The strategists stated, "Regardless of whether the current rise in U.S. Treasury yields is driven by inflationary factors, a more hawkish Federal Reserve, fiscal deficits caused by war, or a combination of these factors, we believe it represents a key risk variable that warrants close attention."
Editor/Jayden