Michael Wilson, strategist at Morgan Stanley, said that economic uncertainty and a weak period for corporate earnings forecasts will put pressure on the US stock market, limiting its upward momentum.
Wilson predicts that in the short term, the S&P 500 index will trade in the range of 5000-5400 points amid uncertain signals regarding the economy. Meanwhile, analysts’ profit downgrades are expected to outnumber upgrades in line with seasonal weakness.
In July, the US stock market was seriously affected by concerns that the Central Bank was too slow to ease monetary policy in order to prevent a recession. Overall, the S&P 500 index is now trading about 6% below the all-time high set in mid-July. The next event that may cause sharp market movements will be the publication of US inflation data for July - tomorrow the producer price index will be released, and on Wednesday the consumer price index will be published.
Wilson said that while bond markets had moved to price in a Fed that is “behind the curve,” equity valuations were still not fully reflecting that risk.