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In the opinion of Andrew Slimmon (Morgan Stanely Investmen Management), earnings are expected to return to growth in 2024, at the same time as inflation declines and a whirlwind increase in already planned U.S. tax expenditures.
We all know that this month of September from the point of view of the markets will not close its performance very well, remaining very strong several players such as oil, interest rates and the dollar. Although, from estimates made by Andrew Simmon, Head of Applied Equity Advisors Team di Morgan Stanley Investment Management, during this month's Equity Market Commentary, the S&P 500 index during the fourth quarter, that is, at the end of the year, could approach soglio 5,000 points.
Will it be trusted or is it just speculation?
The Morgan Stanley expert, explains his conclusions through four reasons why there could be some kind of "stock rally." The first of all relates exclusively to the current underweight in stocks that will lead to decline during the end of this year. As a second point, he adds the likelihood that corporate earnings will tend to turn from flat-negative in 2023 to positive-rising in 2024, causing a significant reversal to occur that should be welcomed and emphasized by equity investors.
It should also add, again according to Morgan Stanley's expert, in favor of Wall Street's possible year-end rally also the wave of fiscal spending that in conjunction with a less restrictive Federal Reserve policy will lead to encouraging prospects for the U.S. financial economy, effective in 2024. It is precisely in this final six months that Washington is expected to put substantial resources into financing large-scale projects.
OIL, DOLLAR, USA/CHINA TENSIONS AND INFLATION
The manager always predicts that year-on-year consumer prices will continue to brake for the rest of 2023. Further suggestion is not to bet in any way on oil while he sees a possible fear of cooling of the U.S. dollar on the horizon, dependent on the amount of expected fiscal spending. Then regarding China/US tensions, he is convinced that both Washington and Beijing have much to lose if the conflict is expected to escalate further.
INFLATION REDUCTION ACT, CHIPS ACT e INFRASTRUCTURE ACT
In the midst of these projects, we find of interest the Chips Act, a regulation that seeks to promote new gen technological innovation through the creation of cutting-edge chips. The other two projects promote infrastructure improvements and inflation reduction through investments in alternative energy to meet climate goals under the Paris Agreement.
So what to check for?
Slimmon concludes his forecast by explaining that the yield differential of 2-10 year Treasuries should be kept an eye on. If the curve is not inverted, because the two-year yield is falling, it would signal that the economy is slowing faster than expected.
In my opinion, we are looking forward to a 2024 full of changes and modifications in the financial markets, finally coming out of this contracture that has driven down yields in recent months.
