Morgan StanleyThe US stock market was downgraded to underweight, and US stocks are expected to have a bumpy road from September to October as the Fed prepares to ease loose monetary policy.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said in a report: "We believe that September-October will be a bumpy period with the approach of the final phase of the transition in the middle of the cycle. The next two months pose a huge risk to economic growth, policy and legislative agendas. We have downgraded the US stock market to underweight and are more bullish on European and Japanese stocks. "
Supporting Morgan Stanley's bearish view is that the Fed may gradually scale back its monetary stimulus measures in the face of rising inflation. The bank said the policy risks were also consistent with the seasonal poor performance of the stock market in September.
"since March, cyclical assets have been struggling with the peak of economic growth and a surge in cases related to delta variants," Sheets said. At the same time, inflation (and inflation expectations) has been stubbornly high, making the market more nervous in the face of low yields and exceptionally loose monetary policy. "
Federal Reserve Chairman Colin Powell said the Fed may begin to withdraw some of its loose monetary policy by the end of the year, but he still believes that a rise in interest rates is a long way off.
Sheets added: "these factors are now converging in a historical period of poor seasonal performance and an unusually heavy schedule."
Morgan Stanley kept the year-end target for the S & P at 4000, down about 12 per cent from Friday's closing price of 4535.43. This is one of the most pessimistic views on Wall Street, with the average year-end target of 4328 points for top strategists, according to a survey by market strategists.