Financial markets continued to ride wild this week, reacting to rapidly changing headlines about the war in the Middle East and Donald Trump's unpredictable rhetoric. However, there are more and more voices on Wall Street that the current correction is slowly coming to an end.
Morgan Stanley: The market correction is nearing its final stages
The S&P 500 index has just had its first positive week in six weeks. This result is due to a strong rally on Tuesday, triggered by investors' hopes for an early end to the war. However, strong isolated rallies are common in a falling market. Since the outbreak of the conflict in the Middle East, US stocks have been losing value and are in correction territory.
However, there are more and more signals that the correction is approaching its final phase. At least that's what Morgan Stanley strategists think. They base their view on historical examples from previous corrections when markets feared an economic slowdown.
Morgan Stanley notes that more than 20% of the Russell 3000 stocks fell to their 52-week lows, and the S&P 500 price-to-earnings ratio (forward P/E) declined by 15%. This is intended to indicate that the market is already pricing in the risk of war in the Middle East.
“We believe that the stock market is less calm about the risks to economic growth than the market consensus suggests,” Morgan Stanley strategists explain.
They warn, however, that a short-term threat to stock markets is possible increases in interest rates by the Fed. Because of this, the yield on 10-year US treasury bonds reached 4.32%. Historically, yield levels of up to 4.5% have put pressure on stock valuations.
“Whether the rise in yields is due to investor concerns about inflation, concerns about a more hawkish Fed tone, the growing U.S. budget deficit, or all of these factors, we believe this is an element that should be taken into account,” the strategists said.
Wells Fargo: Forecasts down, but still predicts stock price rise
Strategists from Wells Fargo lowered the forecast for the S&P 500 index at the end of this year from 7,800 to 7,300 points. This means the stock has a potential upside of just under 11% from current levels.
The lower forecast is explained by the damage that the war in Iran has already done to the economy and market potential.
“We take into account increasing risks that we did not take into account in our baseline scenario at the beginning of the year,” say Wells Fargo strategists.
In their opinion, inflation remains the main threat to markets in the second half of the year.
Evercore: A further decline in the index would be an ideal buying opportunity
Analysts from the Evercore investment company warn that the S&P 500 index may fall to 6,150 points in the coming week. This would suggest a further 6.5% decline from current levels.
The renewed declines may be the result of the April 6 deadline until which Donald Trump postponed strikes on Iran's energy infrastructure, believes Julian Emanuel, senior expert at Evercore.
While the oil price shock may hurt the economy, the analyst believes markets could reach a turning point in the coming days, creating a strategic buying opportunity for long-term investors.
It is the S&P 500 level around 6,150 points that is crucial for investors looking for long-term profits. According to the expert, the forecast drop in the index is an excellent opportunity to replenish your portfolio. He advises looking for high-quality stocks that are currently discounted, especially large-cap technology stocks. The P/E ratio for the Nasdaq 100 index, dominated by such companies, is currently quite low compared to the P/E for the S&P 500. This has not been the case since the pandemic.
Julian Emanuel's positive stance on buying US stocks at this time is based on historical analogies. The most recent of them is Donald Trump's announcement of “liberation day” related to the imposition of tariffs, which happened exactly a year ago. Those who bought when concerns about tariffs were greatest turned short-term panic into long-term portfolio growth.
Emanuel believes that a possible agreement on Iran may have a similar “compressed spring” effect on stock prices.
Assuming tactically that the S&P 500 may fall to 6,150 points next week, Evercore analysts forecast that the main American index will reach a ceiling of 7,750 points at the end of this year. This would represent an increase of almost 18% from current levels. This optimism is based on the assumption that although an oil shock may shake the market, in the long run the stock market gains will be driven by the profits of technology companies.
Bill Ackman: Ignore the bears
The current market turmoil has created one of the best opportunities in many years to buy shares of high-quality companies, argues billionaire investor Bill Ackman.
He calls on market players to look beyond concerns about economic growth and see attractively priced opportunities.
– Some of the best companies in the world are trading at extremely low prices. This is one of the best times in many years to buy high-quality businesses. Ignore the bears, wrote Bill Ackman on the X social media site.
All Ackman had to do was mention that the shares of American mortgage giants Fannie Mae and Freddie Mac were absurdly cheap, and their prices jumped by 40% and 25%, respectively.
Stock markets, including those in the US, have fallen recently due to concerns about the impact of the war in Iran on inflation and the overall economy. Ackman calls this conflict one of the most asymmetric in history.
– It will end well for the United States and the entire world. We have a chance to reap a big peace dividend, Ackman said.
Goldman Sachs: Gold's depreciation was exaggerated
Commodity experts from Goldman Sachs maintained their forecast that the gold price will rebound and may reach $5,400.
This forecast is based on continued strong demand from central banks and expected interest rate cuts by the Federal Reserve. Moreover, the war in Iran may further accelerate the global diversification process away from traditional Western assets.
Since the beginning of the conflict with Iran, gold, which usually acts as a safe haven in troubled times, has fallen by more than 10%, falling to around USD 4,700. Investors have become concerned about the inflation shock and the prospect of higher interest rates, in an environment in which the non-interest-generating metal loses its attractiveness.
“Such a strong sell-off was exaggerated and reflects the market's excessive focus on inflation, while ignoring the impact on economic growth,” say Goldman Sachs experts.
As analysts note, history shows that over time, concerns about economic growth prevail over the fear of inflation, which ultimately favors gold prices.
Fears that some central banks will sell gold from their reserves to save national currency rates may also have contributed to the recent declines in gold prices. According to Goldman Sachs, however, it is more likely that the Persian Gulf countries will first dispose of US treasury bonds for this purpose.
