Morgan Stanley stiller det spørgsmål, alle er optaget af: Er bear-markedet overstået? Morgan Stanley erkender, at der er positive tegn på kursstigninger, lavere oliepriser, en vis stabilitet på ejendomsmarkedet og jobvækst. Men banken hæfter sig ved, at renterne stadig vil stige, og at forbrugerpriserne stiger mere end lønningerne. Det svækker forbruget. Centralbanken vil fortsat trykke på bremserne, omend i et langsommere tempo. Derfor er det alt for tidligt at forudse en afslutning på bear-markedet.
Is the Bear Market for Stocks Over?
Stocks have steadied as investors anticipate an end to tighter monetary policy. But is this rebound sustainable or just a bear-market rally?
U.S. stocks advanced more than 2% last week, continuing the rally that kicked off the third quarter. Key to this enthusiasm seems to be a belief that the Federal Reserve will pivot from its policy-tightening stance toward monetary easing again, with interest-rate cuts coming as soon as the first quarter of 2023.
This argument is premised on data that suggests some components of inflation and other economic trends may be slowing. For instance:
- Oil prices are down, with the West Texas Intermediate benchmark slipping for three weeks in a row and the national average gas price pulling back.
- Housing-market statistics are weakening, with existing home sales continuing to fall, and
- Jobless claims have hit an eight-month high, in a sign that the labor market may be cooling.
While such data points on inflation are encouraging, the equity market’s rally suggests that many investors believe the Fed is nearing “mission accomplished” on its aggressive monetary tightening, which has roiled markets for most of 2022. By that reasoning, the bear market may be just about over, too.
But is it? We think it’s premature to think so. Here’s why:
- Interest rates are apt to rise further. The Fed’s policy rate remains more than 3 percentage points below inflation, per the core personal consumption expenditures (PCE) index. Over the past 50 years or so, it has been incredibly rare for the Fed to hold its policy rate below this inflation gauge for any prolonged period. Even with the Fed’s hiking rates sharply again in July, the gap is still significant, so it seems unlikely that the Fed will be marking an imminent end to its tightening program.
- Consumer prices are increasing faster than wages. With the consumer price index (CPI) running hot at 9.1%, it would take many consecutive months—eight, according to research firm Strategas—of 0% month-over-month inflation to bring CPI down to 5%, the level at which wage growth is roughly pacing. In other words, that would be the point at which consumers are not losing ground to inflation. But it appears that is still a ways off.
It’s possible that the Fed might slow the pace of policy tightening, but that’s not the same as ending it. And, yes, it’s also possible that a recession occurs and prompts the Fed to make an early exit from tightening. But if that’s the case, we’re also likely to see a material slowdown in consumption growth and spikes in unemployment. This then renders current forecasts for next-year earnings, at 8%, too optimistic.
Investors should watch inflation and labor-market data for signs that the Fed has a reason to change its policy stance. Consider active tax-loss harvesting, using any fresh investment losses to help potentially lower your tax bill. We continue to focus on adding selectively to individual securities that offer quality cash flows, above-average yield and growth at a reasonable price. Financials, energy and healthcare are on our list of opportunities.
