Morgan Stanley’s Mike Wilson expects the Federal Reserve to end its tightening campaign soon. That could lift the S&P 500 by 6% to 4,150 points, according to Wilson. The next Fed meeting is “critical for the rally to continue, pause or even end completely,” he said. Loading Something is loading.
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Investors should start anticipating a Federal Reserve pivot that will drive a stock market rally, according to Morgan Stanley’s top stock picker.
Several market indicators including a recent inversion of the 3-month and 10-year US Treasury yield curves “support a Fed pivot sooner rather than later,” a team led by bank’s chief investment officer Mike Wilson said in a research note Monday.
In the note, Wilson’s team stuck to the S&P 500 price call of up to 4,150 points – which would represent a 6.4% upside from the index’s 3,900 level as of Friday’s close – that Wilson himself made in an interview with Bloomberg last week.
The US central bank has raised interest rates by 75 basis points at three consecutive meetings in a bid to tame inflation, currently running at a red-hot 8.2%.
The Fed is set to announce another interest rate decision after the conclusion of its November meeting Thursday.
That meeting will have an outsized impact on markets with any sign that the Fed plans to start easing its aggressive tightening campaign likely to drive stocks higher, according to Wilson’s team’s note.
“This week’s Fed meeting is critical for the rally to continue, pause or even end completely,” the note said, adding, “Our call is still for the rally to reach 4,000 to 4,150 and we’re leaning toward the upper bound.”
Wilson’s optimistic S&P 500 call may surprise some investors. His team published this week’s note after dismal third-quarter earnings reports dragged down the share price of mega-cap US tech stocks including Alphabet, Amazon, and Meta Platforms.
But the fact that benchmark indices finished last week in the green – despite the Big Tech sell-off – flashes a strong technical signal that the Fed will end its string of rate rises soon, according to Wilson.
Weak third-quarter earnings “hammered some of the biggest tech darlings, yet the S&P 500 and even the Nasdaq 100 ended the week up 4% and 2%, respectively,” Morgan Stanley said.
“This kind of price action isn’t unusual toward the end of the cycle particularly as the Fed moves closer to the end of its tightening campaign, something we think is approaching,” the strategists added.
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