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Fortune: The S&P 500 Will 'Fall Sharply' and Join an Ongoing Bear Market, Morgan Stanley Warns

April 26, 2022
Market Crash Bear Market

Article by Will Daniel in Fortune

Morgan Stanley analysts are warning the S&P 500 is set to “fall sharply” and enter bear-market territory this week as investors grapple with rising interest rates and slowing global growth.

In a Monday note, the investment bank’s strategists, led by Michael J. Wilson, said that “the S&P 500 appears ready to join the ongoing bear market” ahead of a stacked week of earnings reports from tech companies like Amazon and Apple.

“In short, the market has been so picked over at this point, it's not clear where the next rotation lies,” the analysts wrote. “In our experience, when that happens, it usually means the overall index is about to fall sharply, with almost all stocks falling in unison.”

In the past month alone, the S&P 500 has fallen nearly 7% as investors weigh the possibility of a faster pace of interest rate hikes from the Federal Reserve in the coming months. 

Morgan Stanley said the Fed’s policies likely mean inflation has peaked, but cautioned that may not be the best thing for public companies and economic growth.

“The problem is that falling inflation comes with lower nominal GDP growth and therefore sales and EPS growth too. For many companies it could be particularly painful if those declines in inflation are swift and sharp,” the analysts wrote.

The investment bank’s bearish forecast comes after the International Monetary Fund (IMF) slashed its forecasts for global economic growth from January’s 4.4% figure to 3.6% last week, citing pressures from the ongoing Russia-Ukraine war. The World Bank proved to be even more pessimistic, cutting its global growth forecast on April 18 to just 3.2%, arguing that higher food and fuel costs will instigate a global economic slowdown.

The Morgan Stanley analysts, who typically come up with a “fresh money buy list” for investors, admitted they are at “a loss for new ideas” this week.

Morgan Stanley isn’t the first investment bank to call for a bear market moving forward. Deutsche Bank said in early April it sees the U.S. heading into a recession by .......

To read this article in Fortune in its entirety, click here.

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