Experts warn of a market collapse
2022.12.08 05:02
Experts warn of a market collapse
Budrigannews.com – Market participants have been waiting for the Fed to take its foot off the gas pedal and signal the end of the most aggressive tightening cycle since the 1980s for a significant portion of the year.
Morgan Stanley says that investors recently hoped that the world’s most powerful central bank would soon change course, which led to a rally of more than 14% in just two months. However, participants in the market are likely to now shift their attention away from the Fed’s monetary policy and interest rates. In a note published on Monday, the U.S. bank warned that from now on, the focus will increasingly be on the consumer, who may face increased pressure in the coming year primarily as a result of the Fed’s aggressive tightening.
According to Lisa Shalett, chief investment officer of wealth management at Morgan Stanley, “the U.S. economy is likely to start feeling the effects of this year’s policy tightening in earnest in 2023, since the economic effects of changes in monetary policy tend to lag by about six to 12 months.”
Morgan Stanley anticipates a weak for 2023. The expert predicted that as a result, corporate profits, pricing power, and sales volumes would decline. However, stock valuations and current earnings expectations do not appear to reflect this outlook,” Shalett warns.
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She advises investors to concentrate less on interest rate path in the future and more on the consumer. Current interest rates are expected to reach their highest point in July of next year at 5% to 5.25%.
The American economy is largely driven by consumers. “Will likely determine the timing and depth of the economic slowdown,” as Shalett writes, “consumption accounts for two-thirds of U.S. economic activity.”
The model developed by the New York Fed predicts that the U.S. economy will enter a recession in November 2023 at a probability of 38%. The probability is probably closer to 100% once the model indicates a value greater than 30% due to its previous accuracy.
Shalett stated that the consumer market in the United States “likely to influence the timing of actual interest-rate cuts, which historically have been a more reliable sign of the end of a bear market.”
However, as evidenced by data like the, the expert stated that the customer is currently holding up quite well. She added, however, that there are already early warning signs indicating a decline in consumer spending. “has plummeted from a peak of 33.8% in April 2020 to 2.3% in October 2022—the lowest it’s been since 2005,” for instance, the personal savings rate, which was inflated during the Corona era primarily by government checks.
Additionally, she stated that the number of advertised new jobs is decreasing and that revolving credit card debt is currently at a record high.
Shalett states, “We believe labor-market and consumer-spending data bear watching, as they will help determine what is next for the U.S. economy” after putting all of this together.
Taking a gander at the financial exchange, she says markets have not yet evaluated a log jam in development into current value valuations and profit gauges.
“This means we are likely to be waiting awhile before this bear market in equities is truly over,” she summarized. “This means we are likely to be waiting awhile before this bear market in equities is truly over.” Earnings estimates typically reach their lowest point in a “policy-driven bear market.”
