After bouncing on Tuesday, the U.S. stock market traded sharply lower on Wednesday, May 18 as retail giants Walmart and Target reported lower-than-expected first-quarter earnings.
U.S. stocks could correct further amid mounting concerns over slowing growth and lower earnings, according to analysts at Morgan Stanley and Goldman Sachs.
The stock market has had one of the worst years in history as investors are whipsawed by rising inflation, tighter monetary policy from the Federal Reserve and the effects of Russia’s war against Ukraine.
The benchmark S&P 500 index has fallen 18 percent this year as investors dump risky assets and search for safe harbors, with tech stocks especially hard-hit.
The declines in the S&P 500 still have room to fall further if the current environment of the Fed tightening policy is priced into slowing growth, said Michael Wilson, Morgan Stanley’s chief U.S. equity strategist, and one of Wall Street’s most vocal bears, in a research note.
“We live in the most chaotic, hard-to-predict macroeconomic times in decades,” Wilson said. “The ingredients for a global recession are on the table.” The bank’s strategists also called for a “substantial further selloff in U.S. equities, even in the base case of no recession.”
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“We expect equity volatility to remain elevated over the next 12 months,” Wilson said.
David Kostin, chief U.S. equity strategist for Goldman Sachs Research, wrote in a note that the outlook for U.S. stocks is not bright, even if an outright recession is avoided.
“The best-case scenario for the economy – and, eventually, for equity prices – probably involves a continued period of constrained equity market returns,” Kostin and his team of analysts wrote in a note to clients. “Swings will remain large until the path of inflation is clarified.”
Not all major Wall Street banks have made this prediction.
JPMorgan analysts led by Marko Kolanovic, have remained bullish as stocks tanked this year, saying, “the past week’s selloff appears overdone.” They maintained their overweight recommendation for developed- and emerging-market stocks.
Photo: An U.S. flag hangs outside the New York Stock Exchange, Feb. 16, 2021. (AP Photo/Frank Franklin II)