The stock market has been in free fall for the past two years. benchmark S&P500 (SNPINDEX: ^GSPC) The index is up 24% this year and nearly 50% over the past two years (as of Nov. 20). Many believe so, given this incredible accomplishment and the high valuation that comes with it. current bull market has passed and is due for revision.
However, the strategist team morgan stanleyrecently released a report with a new price target for the S&P 500 in 2025, and the outlook is surprising.
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From bear to bull
Morgan Stanley's team is led by Mike Wilson, who is known for predicting the last bear market. Mr. Wilson is one of the most talked about market strategists in recent years.
After an incredibly strong performance in late 2020 and 2021, Wilson and his team predicted a decline in the stock market, with most analysts expecting stocks to continue rising in 2022. His judgment proved correct, as all three major indexes ended the year in deep deficits, posting their worst annual losses since 2008.
Since then, Mr Wilson has continued to be even more bearish, falsely claiming that the company would be in the red for another year in 2023, which did not happen. He remains bearish this year, initially calling for an exit. So investors may be surprised to hear that Wilson currently has a very positive view of the bull market. market In 2025.
Under Morgan Stanley's base case, the S&P 500 is expected to rise about 10% to 6,500 next year. Morgan Stanley's bullish case suggests an even bigger tailwind if the market reaches 7,400, suggesting an upside of about 25% from current levels.
We expect the recent earnings growth expansion to continue into 2025 as the Fed lowers interest rates into next year and cyclical indicators continue to improve. A potential increase in corporate animal spirits post-election (as we saw after the 2016 election) could foster a more balanced earnings profile across markets in 2025.
Morgan Stanley added that valuations should remain strong due to strong fundamentals supported by a solid macro outlook. The bank also believes that although the market earnings multiple has declined slightly to 21.5x, it remains high compared to the average over the past 10 years.
Wilson's team projects earnings growth of 13% next year and 12% in 2026. Brent crude oil will trade at $66 per barrel, while the yield on the 10-year Treasury note will fall from 4.41% (as of November 20) to 3.55%. . They are also bullish on Japanese stocks.
hard game
Top market strategists like Wilson have a wealth of investment knowledge. But I don't envy these strategists, because predicting short-term price movements in the stock market is a very difficult task. Wilson and his team showed some strengths. With sentiment, fundamentals, and economic outlook improving, the market could continue its impressive rally.
I will be keeping a close eye on the rise in 10-year Treasury yields due to concerns about President-elect Donald Trump's potential inflationary policies. There is still much to see on this front. It is questionable whether the market will be able to maintain these levels if the 10-year rate remains high as the Federal Reserve lowers or raises the benchmark federal funds rate.
This is because many investors use the 10-year yield as a discount rate when valuing financial assets, so the higher the 10-year yield, the lower the current valuation. The 10-year yield is also used to determine the cost of equity (the return required to take the risk) for many investments. Additionally, the 10-year Treasury yield is used as a benchmark for borrowing costs, so the higher the 10-year Treasury yield remains, the more likely the inflationary environment will be, making rate cuts less likely than the market assumes. The frequency of interest rate cuts may become lower.
The presidential election is over, but there are still many unknowns. The market is poised to continue rising, but with high valuations there is little room for error at this point. This level of uncertainty is a reminder that investors are often better off thinking about the next decade and beyond than thinking about next year.
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Wall Street Analyst Who Accurately Predicted 2022 Stock Market Crash Sets New Price Target for S&P 500 Index – It May Surprise You Originally published by The Motley Fool
