“We are in the new Hossa”, but on the other hand “the market ignores the risk of recession.” Who is right at Wall Street?
As the S&P 500 index returns to the area of historical peaks, investment strategists are more and more positively assessing perspectives for American actions. At the same time, they admit that the market could use a correction, which could be used as an opportunity to shop.
Mike Wilson, Morgan Stanley: We're in the new Hossie
Mike Wilson, Main strategist for shares in Morgan Stanley, One of the most observed strategists on Wall Street optimistically assesses the perspectives for the American market.
– We think that Bessa, which was really nasty, ended in April. Now we are in the new Hossie – said Wilson in an interview for Bloomberg at the beginning of the week.
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According to the strategist, the conditions for the bull market still create an attractive risk ratio for profit for American shares and reviews up to the forecasts of company results, especially in industrial, financial and technological sectors.
Economic factors also favor this.
– For several years we talked about the profitability of treasury bonds at 4.5%, which stock exchange multipliers do not really like. The current level of 4.23% looks good. To continue the bull market you need such ingredients as the increase in the results of the companies that we observe, and monetary policy, which does not suppress this growth. Both fiscal and monetary policy look good. All signs indicate that the next Fed traffic will be a reduction in interest rates – explained Wilson.
At the same time, Morgan Stanley has been warning customers for some time against the upcoming correction, which will be worth using to shop.
– Variability is normal for both bearings and bull market. Instead of a simple step up, consolidation, fluctuations or correction would be something natural. I hope we experience it. We said that the third quarter is the best time for some correction or relaxation – said Wilson. – However, I want to clearly emphasize that we are still at an early stage of the new bull market, so we would like to buy these declines.
He also admitted that in some market segments you can see greed, especially looking at actions such as Palantir.
– It would be naive to say that there is no certain greed in the market part, but this happens during the bull market, just as extreme pessimism is formed during bearings, which we saw in April. Our task as investors is to find good opportunities in terms of risk ratio – summed up the experienced strategist.
Societe Generale: Risk of a speculative bubble with aggressive foot cuts
After very poor data from the American labor market from last week, market participants significantly changed their expectations as to the Fed's movements in the coming months. Currently, the probability that the FED will reduce interest rates in September by 25 base points, reaches 90%, while a week ago it was estimated at less than 40%.
Markets value that by the middle of next year the FED will reduce your feet by a total of 100 base points.
However, the faster rate of interest rate reductions may push the S&P 500 index into the speculative bubble zone in the coming months.
“Gradual foot reductions could strengthen the positive effects of the macroeconomic data cycle, but aggressive foot cuttings through the FED to neutral levels could inflate a bubble on the market in valuations,” write Societe General analysts in a weekly report.
Fed's interest rate reductions would already strengthen the positive background for American shares, which create higher economic growth, healthy level of company debt and revival in business activity.
“Strong rates of return from the S&P 500 over the past 3 months have confirmed our positive attitude towards perspectives in the USA. The trust crisis is short -term,” say Societe Generale analysts.
According to the bank's strategists, the S&P 500 level, at which one should start to worry about the bubble, there would be 7,500 points. It is 18% higher than the current quotations.
According to the base scenario, Societe Generale, S&P 500 should reach 6900 points at the end of the year, which means growth potential of almost 9% from the current level.
Goldman Sachs: The market ignores the risk of recession
Investors on the American stock market, which persists near historical peaks, ignore the risk of recession, warn analysts from Goldman Sachs.
Specialists in the investment bank assess the risk of recession in the US at 30%, What should be a red flag for investors. However, they are so positive that the attempt to play against the market “looks almost irrational” – says Goldman Sachs.
“The problem is that markets are not able to look far enough to the future. And therefore they will ignore the risk of recession,” Paolo Schiavone, Makrostrateg at Goldman Sachs wrote in a note for customers.
According to Bank's analysts, investors will probably ignore the potential slowdown on the American labor market and focus more on high liquidity on markets, structural growth trends, such as artificial intelligence, and tax breaks.
UBS: dollar under political pressure
Weakened labor market in the US negatively affect the dollar and American tax bonds, They warn strategists from the UBS banking group.
Investors probably have not yet fully discounted events from the end of last week. It started with a very poor report from the labor market, then Donald Trump dismissed the head of the office publishing this data, and then resigned a member of the Fed Board, which opens the way to the appointment of a person favorable to this position to Trump.
“These events are important because for the first time from spring, economic factors and those related to the risk bonus are starting to work again,” UBS strategists wrote in the middle of the week.
In the background of these events there are concerns about the growing political pressure on the key American financial and economic institutions and about the threat to their independence.
Donald Trump dismissed the head of the American work statistics office After the latest data, which after the search showed by 258 thousand. less created jobs in recent months than originally given. Trump also regularly criticizes the President of the Fed for the lack of interest rate reduction.
“The opinion that the quality and credibility of American economic data raises doubts, undermines the argument for maintaining American assets and taking risks related to dollar,” UBS strategists say.
Since the beginning of the year, the American dollar index has fallen by about 9% and due to these risk factors may fall even more, warns UBS.
Novo Nordisk. Ubs is a recommendation and target price
One of the companies that attracted the most attention this week was the Danish pharmaceutical giant Novo Nordisk. His shares have fallen to the lowest level from 5 years after lowering the results forecasts for this year. Only this year Novo Nordisk's actions got a cheaper by nearly 50%.
After recent events and a decrease in price, analysts from the UBS bank as one of the first updated their assessment, reducing the recommendation from “Buy” to “neutral”, and the target price from 600 DKK to 340 DKK.
UBS justifies a reduced assessment of competitive pressure from companies selling the equivalents of Novo Nordisk drugs. According to Bank analysts, sellers of copies of drugs from the GLP-1 group will remain on the American market, key for Novo Nordisk obesity drugs, and will inhibit the revenues of the Danish company.
– We do not see potential growth catalysts, except for theoretically very large, unsatisfied demand on the drug market for obesity – said UBS, Matthew Westonas.
Bank analysts estimate that the demand for the drug “is weakening, despite the strong brand recognition.” Ozmpic has the same active substance as Wegova, but is used to treat type 2 diabetes. A direct competitor of Ozempic, Mounjaro, produced by the American company Eli Lilly, met with a “much better acceptance” among doctors.
They see a chance to increase sales in Donald Trump's proposal so that GLP-1 drugs used to treat obesity are reimbursed under the Medicare program. However, the same Donald Trump recently sent letters to pharmaceutical companies, including Novo Nordisk, in which he demands a reduction in the prices of drugs sold in the USA, which creates the risk of additional challenges, warns UBS.
Source: Verslo Žinios
