Friday, December 3

Morgan Stanley warns of the landing of ‘the bears’ in the market

The asset management industry is immersed in a task very typical of this time of year: preparing the market outlook for next year.

In this sense, There is a strong debate among companies that are “constructive” regarding the behavior of the markets for the next 12 months (that is, they contemplate a prolongation of the current bullish rally) and those who think that it is time to correct.

And it is not an easy question to anticipate. The American stock market rises 25 percent this 2021; similar to the European stock market (which climbs 22 percent). Thus, both the US S&P 500 and the European Euro Stoxx 50 are at record highs.

A ‘long-lived’ rally

And the rises come a long way because, already in 2020, the S&P 500 rose 6 percent; while in 2019 it climbed another 31 percent. In that sense, how long can the bags continue to rise?

That is the question that many experts are asking and it is precisely the high valuations achieved by equities that lead Morgan Stanley to anticipate a correction in 2022.

“A double-digit drop is quite likely in 2022,” Morgan Stanley’s chief strategist for the European stock market, Graham Secker, said in a recent interview.

“Stocks have been going up in a straight line for 18 months with no significant correction. I don’t think this can continue for another 12 months,” he added.

Secker believes that the slowdown in the recovery and the gradual withdrawal of economic stimuli are what will favor this collection of benefits in the markets.

High valuations in the markets

Too from Robeco warn about the high valuations. “Excessive valuations point to below-average returns across all asset classes over the medium term, particularly US equities. That is reason enough to be vigilant about downside risk, at a time when many investors fear missing out on opportunities and want to buy into cuts, “said a recent company report.

Other managers like Amundi are also cautious in this regard, although not as pessimistic as Morgan Stanley. “In 2022, the cycle will extend even further, but we no longer see frantic markets in sight. In the sequence of tapering and slowing down, followed by more stimulus and re-acceleration, investors should be cautious in the early part of the year and look for entry points to complement their strategic positioning in equities, commodities and emerging markets, in a typical move late cycle, ”wrote Vincent Mortier, the house’s CIO, in a report. In this scenario, from Amundi they believe that it is best to be “neutral” in equities.

Also in this temperate scenario are the experts of Groupama AM. “Our reflationary scenario continues to be favorable to risk assets. However, the new growth and inflation regime may encourage managers to make more cautious assumptions about volatility and correlation parameters, leading to a drop in leverage and, in doing so, a less dramatic increase in the future of equity markets ”, pointed out Christophe Morel, Chief Economist of the French management company.

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