Morgan Stanley’s Mike Wilson still doesn’t believe in a “Santa rally” on Wall Street.
What a Scrooge, right? He probably doesn’t believe in Santa either. Where do the presents under the tree come from, Mike? And what about the half-eaten sugar cookies and the empty milk glass? Was that all just an elaborate ruse orchestrated by my parents?
Credit where it’s due: Wilson’s been “right” since early August. The scare quotes are there as a reminder that although the S&P did eventually correct, the benchmark ran sharply higher from January through July against the bearish prognostications of Wilson and a bevy of other recognizable names from the sell-side.
Wilson’s latest musings were virtually indistinguishable from last week’s. He’s concerned about breadth, revisions and an unforgiving reporting season during which “stocks are trading poorly after earnings whether they are good or bad,” as he put it.
“Most importantly for the headline S&P index, most of the mega-cap leaders that have reported so far have not traded well post their Q3 results,” Wilson went on, adding that if the big names can’t “keep the index above key technical levels,” a year-end rally is all the more unlikely.
For weeks, Wilson insisted the index was destined to trade down to meet poor breadth measures. Breadth, he argues, “typically leads price.” The figure on the right above bodes ill in that regard. Were the S&P (measured there as a percentage of its 200-day moving average) to rendezvous with the share of NYSE stocks trading above their 200-DMA, the benchmark would trade with a three-handle.
I continue to believe that the proximate cause of stocks’ malaise is rates and particularly the nervous US long-end. Frankly, I don’t think that’s debatable. Sure, equities have other problems, but the locus of concern is a bond market selloff that counts as the worst in more than six decades of Bloomberg data on several metrics.
In any case, I suppose it doesn’t matter. Wilson’s year-end target for the S&P is 3,900 and if things keep going the way they’re going, he may be able to gloat. An “I told you so” moment for Mike would justify another top-ranking in the Institutional Investor survey. He was once again named best portfolio strategist.
“As we’ve noted, during late-cycle periods, uncertainty is higher than average [and] as a result, price momentum often dictates investor opinion about the fundamentals and therefore one’s confidence and positioning,” he said. “Based on our fundamental and technical analysis, we remain comfortable with our long-standing 3,900 year-end target for the S&P 500, which implies a 17x multiple on our 2024 EPS forecast of approximately $230.”
