Morgan Stanley has done better than most forecast markets during this turbulent year. This is what it says comes next.

Wall Street analysts are among those who arrive at the airport with hours to spare. Previews for the year ahead arrive before Thanksgiving, so it can’t be too much of a surprise that Morgan Stanley released its mid-year outlook just 11 days after May.

Not that anyone saw what 2022 was in store for (the worst bond market performance in decades, a surge in commodities, a war in the Ukraine), but Morgan Stanley’s outlook was closer to reality than the most certainly better than that of the other Wall Street firm with Morgan on their behalf. He began the year by pointing to mid- to late-cycle challenges, warning of high valuations, tightening policies and higher inflation than most are used to. All of that sounds good.

From the file: This is what Wall Street analysts see for the US stock market in 2022

The bank is still banging on that drum. “With strong labor markets, tighter policies, a flat curve, and our economists forecasting slower global growth with a downward bias, we believe the ‘late cycle’ flavor continues in the market, supporting an overall light position. and a premium for portfolio defense. /diversification”, say the strategists led by Andrew Sheets.

In practice, that means Morgan Stanley expects the S&P 500 SPX to
keep falling, to 3900 for the second quarter of 2023, although it is more bullish elsewhere. Its main trading recommendation is long Japanese stocks, as the firm says recent currency weakness should boost Japanese corporate earnings.

The weakness of the UK and Australian currencies, as well as the rally in commodities, also make them bullish on UK and Australian equities. In the US, the firm likes the defensive healthcare and utilities sectors. In commodities, Morgan Stanley prefers oil to gold, as it forecasts $130 per barrel Brent BRN00
in the third quarter, and aluminum over copper.

Probably the most useful graphic the company provided was this cartoon:

The buzz

US consumer price growth slowed to 0.3% in April, the Labor Department reported on Wednesday, but core price growth accelerated to 0.6% faster than forecast . In the last 12 months, prices have gained 8.3%.

Market gains quickly evaporated, with ES00 stock futures

spinning lower.

The 10-year Treasury yield BX:TMUBMUSD10Y
it rose to 3.04%.

European Central Bank President Christine Lagarde said she expects the central bank’s asset purchase program to end “early” in the third quarter, and the first rate hike could come as soon as a few weeks later. The ECB’s governing council has a meeting on July 21.

Shares fell 14% in premarket trading as the cryptocurrency trading app reported worse-than-expected earnings on the volume decline. Also in the crypto space, the so-called TerraUSD algorithmic stablecoin fell as low as 30 cents on the dollar.

U software unit
stocks slumped on weak guidance. Walt Disney DIS’s Big Earnings Report of the Day,
comes after the close of trading.

Swedish Match SE:SWMA
recommended a $16 billion all-cash offer from Philip Morris International PM.

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