Analysts have polarized opinions when it comes to the medium- and long-term prospects of the US stock market. They differ significantly yet all of them have some grain of truth.
As high volatility persists on Wall Street, top banks and stock strategists envisage different scenarios for the equity market. The question is whether the US economy will slide into a recession or pick up steam in the long term.
JPMorgan Chase CEO Jamie Dimon reckons that the outlook for the US economy is pessimistic. He is also casting doubts on a soft landing. The CEO estimates the odds of a "soft landing" to be around 10% and the probability of a "harder landing" to be closer to 20-30%. Dimon also assumes that there is a chance the US is heading into something worse due to aggressive tightening, the prolonged crisis in Ukraine, and soaring commodity prices.
Nouriel Roubini, who has earned the moniker Dr. Doom for his pessimistic economic views, is confident that the central bank will stick to rate hikes in the long term. "The fed funds rate should be going well above 4% - 4.5% to 5% in my view - to really push inflation towards 2%," Roubini stated.
Currency strategists at Morgan Stanley believe that the prices of US shares still exceed their market value and corporate earnings of companies. Now, the US stock market is gripped by bearish sentiment, which is unlikely to fade in the near future. Therefore, the shares of some companies could drop markedly. The current economic situation, the Fed's hawkish stance, and the corporate earnings of companies are the main headwinds for Wall Street. Morgan Stanley warns against rejoicing too soon in last's fall in US inflation. The latest CPI data revealed that consumer prices declined to 8.5% from 9.1% on an annual basis.
Earlier, Michael Burry, a popular investor, shocked traders by his decision to liquidate his entire portfolio of US stocks. Burry only owns shares of a single company, Geo Group, which invests in private prisons and mental health sites. Notably, Burry is well known for his unconventional solutions. He is not afraid to go against the general trends on Wall Street. The investor is also certain that inflation in the United States has not peaked yet. So, he does not expect the Fed to make a shift to a dovish stance. He thinks the worst is yet to come, namely the consumer spending crisis. "Remember the savings glut problem? No more. COVID helicopter cash taught people to spend again, and it's addictive. Winter coming," Burry tweeted.
However, there are analysts who remain optimistic. Mislav Matejka, an investment strategist at JPMorgan, stresses that the rally on Wall Street is not over. It will last until the end of 2022 against the backdrop of declining long-term government bond yields. The strategist contemplates that stocks are likely to jump if there is an increase in the 10-year and 20-year Treasury note yields. Apart from that, stocks could rise amid China’s strong reports and a steady economic expansion.
