Stock Rally Will Not Be Fueled By Earnings, Says Morgan Stanley

Even the most robust corporate earnings this season will not be enough to fuel the S&P 500 this time, as per one of the most prominent voices on Wall Street.

The pessimistic view of Morgan Stanley on the US stocks is yet to be materialized this year. However, he says that company prophecies will have more weightage given higher interest rates, elevated equity validations, and diminishing liquidity.

“With second quarter earnings beginning this week, ‘better than feared’ likely isn’t going to cut it anymore,” Wilson mentioned in a note. The strategist also said that he is expecting further cuts to analysts’ earnings estimates in the latter half of the year, “so the key for stocks will come via company guidance for the out quarter rather than the results themselves.”

Wilson had joined a growing chorus of both investors and market strategists that predict a choppy viewpoint for stocks after their first-half rally. There has been early confirmation of that playing out in July, with the S&P 500 posting a decrease in the previous week amongst terrors of a hawkish for longer Federal Reserve.

The latest Markets Live Pulse survey by Bloomberg also found that the participants are preparing for profit warnings and higher rates of interest to spark further decreases in the S&P 500 this earning season, which starts off with reports from the major banks in the US on Friday.

Overall the data gathered by Bloomberg Intelligence, analysts have been expecting the second-quarter earnings to fall by almost 9%, which is also the biggest year-over-year decrease since 2020.

However, on the other hand, the Goldman Sachs team said that they have been expecting US companies to “meet or exceed the low bar” that has been set for the second quarter. Although, they believe that the expectations of the analysts for a bounce in profits in 2024 are “too optimistic.”

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